* Challenge on "hard Brexit" stokes buying on UK government
* U.S. core CPI rises 0.1 pct, less than forecast
* Dealers sell Treasuries to hedge large Saudi bond issue
(Recasts with updated market action; adds quote)
By Richard Leong
NEW YORK, Oct 18 U.S. Treasury yields fell on
Tuesday in line with their U.K. counterparts on chances that
parliament may have to ratify a British exit from the European
Union, which reduced some bets that the U.K. would lose access
to the single market.
U.S. bond yields pulled further away from four-month peaks
set on Monday on data that showed the underlying inflation trend
moderated in September. This revived expectations it may take
longer than previously thought for domestic inflation to reach
the Federal Reserve's 2 percent goal, keeping the Fed on a
glacial path on raising interest rates.
"The initial strength came from gilts," said Jim Vogel,
interest rates strategist at FTN Financial in Memphis,
Tennessee. "The inflation trade which has come in bursts has
cooled a bit," he added.
A lawyer who represents the U.K. government in its challenge
over who has the right to trigger Brexit divorce talks, James
Eadie, said parliament would "very likely" have to ratify any
Brexit agreement. This runs counter to Prime Minister Theresa
May's hard line for a rapid exit from the EU.
A hard Brexit is seen among some investors as harmful to the
British economy, making gilts less attractive.
Uncertainty on how London's High Court may rule stoked some
buying of U.K. government debt with 10-year yields falling over
4 basis points to 1.077 percent.
Benchmark U.S. 10-year Treasury notes were last
up 4/32 in price for a yield of 1.750 percent, down 1.6 basis
points and not far below a four-month peak of 1.841 percent
reached on Monday.
Treasury yields briefly rose earlier on Tuesday as dealers
sold government bonds to hedge a large global bond issue from
Saudi Arabia that they are underwriting.
Saudi Arabia planned to sell a multi-part bond issue worth
$10 billion to $15 billion, according to IFR, a Thomson Reuters
Bond dealers typically sell Treasuries to hedge against a
deal they underwrite and then buy them back after the deal is
The U.S. Labor Department said on Tuesday the Consumer Price
Index, its broadest inflation gauge, rose 0.3 percent in
September, matching the median forecast among analysts polled by
However, the CPI core rate, which excludes volatile food and
energy prices, edged up 0.1 percent in September, falling short
of an expected 0.2 percent increase.
Tuesday, Oct. 18 at 1437 EDT (1837 GMT):
US T BONDS DEC6 164-9/32 0-11/32
10YR TNotes DEC6 130-80/256 0-48/256
Price Current Net
Yield % Change
Three-month bills 0.3425 0.3476 0.000
Six-month bills 0.4725 0.4802 0.002
Two-year note 99-230/256 0.8026 -0.020
Three-year note 100-30/256 0.9601 -0.021
Five-year note 99-124/256 1.2327 -0.023
Seven-year note 98-248/256 1.532 -0.024
10-year note 97-196/256 1.7485 -0.018
30-year bond 94-120/256 2.5147 -0.008
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 22.50 0.50
U.S. 3-year dollar swap 14.00 0.25
U.S. 5-year dollar swap 1.75 0.25
U.S. 10-year dollar swap -17.00 0.00
U.S. 30-year dollar swap -56.75 -0.25
(Reporting by Richard Leong; Editing by Nick Zieminski and