October 26, 2018 / 4:08 PM / 20 days ago

TREASURIES-Yields fall to three week lows as equities tumble

(Recasts with stocks fall, adds quotes, updates prices)

* Treasury moves taking cues from stocks

* Consumer spending boosts third quarter GDP

* Oil price drop reduces inflation expectations

By Karen Brettell

NEW YORK, Oct 26 (Reuters) - U.S. Treasury yields tumbled to three week lows on Friday as stocks sank in volatile trading, boosting demand for safe haven debt.

Grim earnings reports from Amazon and Alphabet rekindled a rush to dump technology and high-growth stocks.

Stock markets around the world were on track for their longest weekly losing streak since 2013.

“It’s a global flight to safety,” said Collin Martin, Director, Fixed Income at the Schwab Center for Financial Research in New York.

Treasuries have largely moved in lockstep with stocks this week, with yields rising and falling with equity prices.

“At this point, the rout in equities and broader deterioration in risk sentiment seems to be the primary driver of the rally in Treasuries,” said Jonathan Cohn, an interest rate strategist at Credit Suisse in New York.

A drop in oil prices this month is also a large driver of bond strength, as it has reduced inflation expectations.

“This has been a move driven by inflation expectations primarily,” said Cohn.

U.S. crude prices < CLc1> have fallen to $67.20, from $76.90 on Oct. 3.

Benchmark 10-year Treasury yields fell as low as 3.057 percent on Friday, the lowest since Oct. 3, before rising back to 3.077 percent. The yields are down from a more than seven-year high of 3.261 percent on Oct. 9.

Weak equity markets have fueled some speculation that they could derail the Federal Reserve’s plans to execute further interest rate hikes, if they persist.

Loretta Mester, president of the Cleveland Fed, said on Thursday that the recent cratering of stock markets is nowhere near severe enough to rattle confidence and significantly hurt U.S. business and consumer spending.

Gross domestic product data for the third quarter on Friday showed that a tariff-related drop in soybean exports was partially offset by the strongest consumer spending in nearly a four years and a surge in inventory investment.

“It was a pretty good GDP result on balance,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. “It seems like the Treasury markets are taking this as modestly economically positive, bond negative.” (Additional reporting by Sinéad Carew in New York Editing by Bernadette Baum and Susan Thomas) )

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