* Weaker stock prices renew bids for U.S. government debt
* U.S. yield curve flattens from widest level in a month
* N.Y. Fed business index falls unexpectedly in October
* Fed "very close" to employment, inflation goals -Fischer
(Updates market action, adds quote)
By Richard Leong
NEW YORK, Oct 17 U.S. Treasury yields declined
after hitting four-month highs on Monday, as investors sought
bargains in bonds whose prices had dropped on Federal Reserve
Chair Janet Yellen's remarks last week which suggested that the
central bank might tolerate higher inflation.
Losses on Wall Street stocks and a surprise drop in a New
York Federal Reserve gauge on regional business activity in
October also supported demand for bonds.
"People see decent value at these levels," said Sharon
Stark, fixed-income strategist at Incapital LLC in Boca Raton,
U.S. benchmark 10-year Treasury notes rose 8/32 in price for
a yield of 1.762 percent, down 3 basis points from Friday.
Earlier on Monday the 10-year yield reached 1.814 percent, the
highest since June 2, according to Reuters data.
Wall Street indexes were 0.2 percent lower.
Yellen said on Friday the question was whether the damage
following the financial crisis of 2008-09 could be undone "by
temporarily running a 'high-pressure economy,' with robust
aggregate demand and a tight labor market."
Some traders interpreted her remarks as suggesting the
central bank might consider allowing inflation to run above the
Fed's 2.0 percent target. They sold more longer-dated Treasuries
than short-term ones in reaction to Yellen's comments, pushing
their spreads to their widest in about a month.
"People are still digesting what Yellen said," said Justin
Lederer, interest rate strategist at Cantor Fitzgerald in New
York. "We hit the lows (in prices) overnight and it's been a
grind from there."
The yield spread between five-year and 30-year Treasuries
reached 129 basis points earlier Monday before retreating to 126
basis points, which was nearly 1 basis point tighter than
The decline in Treasury yields was mitigated by a strong
supply of corporate bonds with an expected $25 billion of
investment-grade issues to hit this week, according to IFR, a
unit of Thomson Reuters.
While economic data has been mixed, U.S. interest rates
futures implied traders saw nearly a 70 percent chance of a rate
hike in December, little changed from late Friday, according to
CME Group's FedWatch program.
On Monday, Fed Vice Chair Stanley Fischer said the central
bank was "very close" to its targets on domestic inflation and
unemployment. Fischer, however, did not specify the timing of a
Boston Fed President Eric Rosengren told Reuters the current
levels of jobs and inflation support the case for a rate
Monday, Oct. 17 at 1500 EDT (1900 GMT):
US T BONDS DEC6 163-31/32 24/32
10YR TNotes DEC6 130-32/256 68/256
Price Current Net
Three-month bills 0.305 0.3095 0.006
Six-month bills 0.4375 0.4445 -0.007
Two-year note 99-220/256 0.8228 -0.016
Three-year note 100-14/256 0.9814 -0.019
Five-year note 99-96/256 1.2556 -0.026
Seven-year note 98-208/256 1.5559 -0.031
10-year note 97-156/256 1.766 -0.026
30-year bond 94-84/256 2.5216 -0.033
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 22.25 -0.75
U.S. 3-year dollar swap 14.00 0.00
U.S. 5-year dollar swap 1.50 0.50
U.S. 10-year dollar swap -17.25 -0.25
U.S. 30-year dollar swap -56.50 0.00
(Reporting by Richard Leong; Editing by Richard Chang)