April 11, 2019 / 7:15 PM / 4 months ago

TREASURIES-Yields advance after U.S. data tempers slowdown concerns

    * U.S. jobless claims, producer prices reports were solid
    * Markets still expect Fed to be on hold this year
    * Less conviction rate cut by Q1 2020 -analysts
    * U.S. 30-year bond auction shows softer-than-expected

 (Adds comment, 30-year auction results, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, April 11 (Reuters) - U.S. Treasury yields rose on
Thursday after generally solid  data on U.S. jobless claims and
producer prices that may have eased worries about a steep
downturn for the U.S. economy.
    The reports did not, however, sway expectations that the
Federal Reserve will hold interest rates steady throughout the
year, analysts said.
    U.S. yields further edged higher after a
softer-than-expected 30-year bond auction. The bond picked up a
yield higher than that expected at the bid deadline, suggesting
weak demand.
    "PPI (producer price index) sparked early selling across the
curve that started as a flattener then shifted to parallel rate
increases as the 30-year auction came into view," said Jim
Vogel, interest rates strategist, at FTN Financial in Memphis.
    Data on Thursday showed U.S. producer prices increased by
the most in five months in March, although underlying wholesale
inflation was tame. On the other hand, U.S. initial jobless
claims dropped to a 49-1/2-year low last week, pointing to
sustained labor market strength.
    "The reality is that inflation is stable and drifting down a
little bit," said Stan Shipley, fixed income strategist at
Evercore ISI in New York. "Until you get the core PCE deflator
well above 2.25 percent, or closer to 2.5 percent, the Fed will
more or less going to be on hold here."
    The core PCE (personal consumption expenditure) index is one
of the inflation measures that the Fed looks most closely at and
Shipley said the index currently shows inflation of 1.6 percent
to 1.7 percent.
    Following the release of Thursday's data, analysts at Action
Economics said fed funds futures have declined, with the market
re-thinking the potential for rate cuts next year. 
    "The market is now suggesting the Fed is on hold this year,
as seen in the March FOMC minutes ... and is less than fully
priced for a rate cut by Q1 2020," said Action Economics.
    In afternoon trading, U.S. 10-year note yields rose to
2.502%, up from 2.477% late on Wednesday.
    Yields on U.S. 30-year bonds were also higher, at 2.935%
, up from 2.904% on Wednesday.
    On the short end of the curve, U.S. 2-year yields edged up
to 2.352%, compared with Wednesday's 2.327%.
    Fed Vice Chairman Richard Clarida, New York Fed President
John Williams, and St. Louis Fed President James Bullard all
spoke on Thursday, and seemed to be preparing the market for a
potential economic slowdown.

    Also on Thursday, the Treasury auctioned $16-billion in
30-year bonds, with a yield of 2.930 percent, higher than the
level at the bid deadline. The bid-to-cover ratio was 2.25, a
little lower than the 2.3 average.
      April 11 Thursday 2:51PM New York/1851 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.375        2.4224    -0.005
 Six-month bills               2.39         2.4527    -0.009
 Two-year note                 99-207/256   2.3499    0.023
 Three-year note               99-218/256   2.3015    0.025
 Five-year note                99-34/256    2.3107    0.032
 Seven-year note               99-8/256     2.4018    0.027
 10-year note                  101-20/256   2.5006    0.024
 30-year bond                  101-72/256   2.9351    0.031
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         9.00        -0.50    
 U.S. 3-year dollar swap         6.00         0.00    
 U.S. 5-year dollar swap         3.00        -0.25    
 U.S. 10-year dollar swap       -1.75         0.25    
 U.S. 30-year dollar swap      -25.50        -0.25    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Steve
Orlofsky and Chizu Nomiyama)
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