February 9, 2018 / 7:18 PM / a year ago

TREASURIES-Prices gain as stocks renew sell-off

 (Recasts with price gains, adds quotes)
    * Stock weakness adds bid for bonds
    * U.S. budget seen increasing debt issuance
    * CPI data in focus next week for inflation clues

    By Karen Brettell
    NEW YORK, Feb 9 (Reuters) - U.S. Treasury prices gained on
Friday after renewed weakness in equity markets increased demand
for the low-risk debt.
    Bond yields have jumped in the past two weeks as rising
inflation and other economic data has led investors to adjust
for the prospect of faster economic growth and the possibility
the Federal Reserve will raise interest rates faster than
previously expected.
    Rising bond yields, however, have spooked equity investors,
who worry that higher rates may dent growth. Volatility in
equities has in turn added back a bid to hold low-risk U.S.
government debt.
    “As we’ve seen the volatility in equities creep back
in…we’ve seen a bid hit the Treasury market,” said Mike Lorizio,
a senior fixed income trader at Manulife Asset Management in
    Benchmark 10-year notes             were last up 9/32 in
price to yield 2.819 percent, down from 2.849 percent on
    For most of the week they have traded near the high end of
this week's range, which is between a four-year high of 2.885
percent and a low of 2.648 percent both reached on Monday.
    A budget deal reached on Friday to increase spending
increased concerns about rising debt issuance, which is expected
to weigh on bond prices going forward.
    The budget bill raises military and domestic spending by
almost $300 billion over the next two years.             
    “This is a larger effect on the deficit over the next two
years than the tax bill by a significant margin,” said Michael
Cloherty, head of U.S. rates strategy at RBC Capital Markets in
New York.
    Issuance is also expected to jump as the Treasury rebuilds
its cash position after the country’s debt ceiling was lifted
until March 2019.
    The Treasury has already begun to increase the size of its
public auctions to make up for declining purchases by the
Federal Reserve, which analysts say may have added to the
softness of $66 billion in new sales of three-, 10- and 30-year
debt this week.                                       
    The U.S. central bank’s purchases have not been included in
the bond sales, which previously enabled the Treasury to lower
public auctions sizes.
    Next week’s consumer price and retail sales data will be
scrutinized for further inflation indications.
    "CPI next week will be pretty telling," said Lorizio. "While
inflation expectations have certainly creeped up a bit, measured
inflation hasn’t shown many signs of accelerating in a
significant way."

 (Editing by Lisa Shumaker)
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