October 11, 2018 / 4:22 PM / 2 months ago

TREASURIES-Yields slide to one-week low as U.S. stocks in focus

    * U.S. CPI data weaker than expected
    * Stocks fall, tame CPI not stopping Fed from hiking
-analyst
    * Markets await U.S. 30-year auction

 (Recasts first paragraph to update Wall Street moves; adds new
comment; updates prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 11 (Reuters) - U.S. Treasury yields fell to
one-week lows on Thursday, sliding for a second straight session
as Wall Street shares weakened a day after posting steep losses
on worries about prospects for rising interest rates.
    A weaker-than-expected rise in U.S. inflation for September
also added to Treasuries' bullish tone and may have partly
tempered expectations of more aggressive Federal Reserve  
interest rate hikes.
    Investors kept a close eye on U.S. stocks after the previous
day's fall. At midday, Wall Street shares were in the red in
choppy trading.
    "Stocks are a trigger for the bond rally, but it's not
exactly on a one-for one basis," said Jim Vogel, senior rates
strategist at FTN Financial in Memphis, Tennessee.
    "I think it's less about flight to quality than it is a
temporary reversal of the strong bias toward steepening and a
strong bias that rates are going to continue on their trajectory
of last week," he added.
    The yield curve steepened last week on the U.S. 5-year note
and U.S. 30-year metric and on Monday, the spread on those two
maturities rose to 36.2 basis points, the widest
since late May.
    U.S. yields accelerated their ascent last week on strong
economic data and the Fed's hawkish outlook for interest rates. 
    While Thursday's softer-than-forecast U.S. consumer prices
data weighed on yields, analysts said this should not deter the
Fed from hiking.
    The Consumer Price Index rose 0.1 percent last month after
rising 0.2 percent in August. Excluding the volatile food and
energy components, the CPI edged up 0.1 percent for the second
straight month. The so-called core index had increased 0.2
percent in May, June and July.
    George Goncalves, managing director and head of fixed income
strategy at Nomura in New York, said the tame inflation data
could slow the momentum in yields, but the Fed will continue
lifting rates.
    "It does make people think that it (inflation) is not
imminent of a danger and therefore the Fed will maintain its
gradual pace of every quarter," he said. "It takes away some of
the concern that inflation is accelerating, but not enough to
turn us back into rally mode."
    In midday trading, U.S. 10-year note yields were at 3.164
percent, down from 3.225 percent late on Wednesday.
Earlier in the global session, 10-year yields hit a one-week low
of 3.142 percent.
    U.S. 30-year bond yields fell to 3.341 percent,
versus Wednesday's 3.401 percent. The yield earlier dropped to
3.329 percent, the lowest since Oct. 3.
    On the short end of the curve, U.S. two-year yields were at
2.856 percent, down from 2.881 percent on Wednesday.
    The market is looking to the Treasury's auction of $15
billion in re-opened U.S. 30-year bonds later in the session.
The U.S. 3- and 10-year sales auctions held on Wednesday were
lackluster, analysts said.
    
      October 11 Thursday 11:58AM New York / 1558 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.225        2.2685    -0.005
 Six-month bills               2.3875       2.4501    0.002
 Two-year note                 99-204/256   2.8566    -0.024
 Three-year note               99-202/256   2.949     -0.038
 Five-year note                99-90/256    3.0164    -0.045
 Seven-year note               99-84/256    3.1079    -0.054
 10-year note                  97-140/256   3.1668    -0.058
 30-year bond                  93-140/256   3.3433    -0.058
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.00         0.25    
 spread                                               
 U.S. 3-year dollar swap        16.50        -0.25    
 spread                                               
 U.S. 5-year dollar swap        12.75         0.50    
 spread                                               
 U.S. 10-year dollar swap        4.50         0.25    
 spread                                               
 U.S. 30-year dollar swap      -10.50         0.75    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu
Nomiyama and Susan Thomas)
  
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