June 23, 2017 / 6:43 PM / a month ago

TREASURIES-Yield curve near almost 10-year lows on inflation concerns

3 Min Read

 (Adds Fed speakers; Updates prices)
    * Yield curve holds near flattest levels since 2007
    * Fed's Mester says inflation declines likely temporary
    * Fed's Bullard says further rate hikes should depend on
inflation

    By Karen Brettell
    NEW YORK, June 23 (Reuters) - U.S. Treasuries yields were
little changed on the day on Friday and the yield curve held
near its flattest levels in almost 10-years as expectations of
low inflation continued to boost demand for longer-dated debt.
    The yield curve flattened this week as oil prices declined
and concerns lingered over last week’s weaker-than-expected
Consumer Price Index report.
    “For the third month in a row, (CPI) was way below
expectations,” said Jim Vogel, an interest rate strategist at
FTN Financial in Memphis, Tennessee, adding that continued
declines in non-seasonally adjusted consumer prices played a
large role in the market move.
    A decline in oil prices despite positive fundamentals added
to concerns, Vogel said.
    The yield curve                was last at 96 basis points
after flattening to 95 basis points on Thursday, the lowest
since December 2007.
    Benchmark 10-year notes             were unchanged on the
day in price to yield 2.15 percent.
    Expectations that the Fed will continue on its tightening
course has weighed on short- and intermediate-dated notes, which
are the most sensitive to central bank's policy, even as
longer-dated debt rallied.
    New York Fed President William Dudley and Boston Fed
President Eric Rosengren both took a hawkish tone this week on
monetary policy, noting that pausing the tightening cycle could
pose risks to the economy.
    Cleveland Fed President Loretta Mester added to the
sentiment on Friday, saying that recent inflation weakness was
likely temporary and it should not delay another interest-rate
hike this year.             
    St. Louis Fed President James Bullard, by contrast, said on
Friday that the Fed should wait on any further rate increases
until it is clear inflation is reliably heading to the Fed's 2
percent target.             
    The Fed has emphasized the improving job market and an
expectation that inflation will return to targets despite recent
declines.
    The next major economic release, June’s employment report on
July 7, will be watched for signs of further improvement in the
labor force.
    “If the Fed is going to continue to watch the employment
rate while everyone else watches inflation, the Fed’s probably
not going to veer off its course,” said Vogel.

 (Editing by Lisa Von Ahn and Grant McCool)
  
 
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