May 25, 2018 / 1:38 PM / 2 months ago

U.S. TIPS breakeven rates hit 6-1/2 week lows

NEW YORK, May 25 (Reuters) - The U.S. bond market’s gauges on investors’ inflation expectations fell to 6-1/2 week lows on Friday as Treasury yields dropped further from their multi-year peaks on worries about U.S.-China trade tension and concerns about Italy and Turkey.

U.S. President Donald Trump’s surprise cancellation of the June 12 summit with North Korean leader Kim Jong Un over the latter’s nuclear program also has spurred safe-haven demand for lower-risk U.S. government debt, driving their yields lower.

Moreover, Saudi Arabia and Russia’s signal that they would consider raising oil output knocked oil prices lower. More supply from two of the world’s largest oil producers put additional pressure on the inflation outlook.

At 9:17 a.m. (1317 GMT), the 10-year inflation breakeven rate, or the yield gap between 10-year Treasury Inflation Protected Securities (TIPS) and regular 10-year Treasury notes, was 2.10 percent, which was the lowest since April 11. It was 3 basis points lower than late on Thursday.

Just last week, the 10-year TIPS breakeven rate hit 2.21 percent, which was the highest level since August 2014, Reuters and Tradeweb data showed.

Early Friday, the yield on benchmark 10-year Treasury notes was 2.941 percent after touching its lowest level in almost three week. It climbed to 2.128 percent last week, which was the highest since July 2011.

The five-year TIPS breakeven rate fell to 2.07 percent, which was the lowest since April 11. Last week, it hit 2.17 percent, the highest since April 2014.

Shorter-dated TIPS rates are sensitive to energy prices.

U.S. crude futures were down 2.6 percent at $68.91 a barrel in early Friday trading. (Reporting by Richard Leong Editing by Chizu Nomiyama)

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