October 10, 2017 / 6:56 PM / 10 months ago

TREASURIES-Prices pare gains as Catalonia allows for talks with Madrid

 (Recasts with Catalonia speech, adds quotes, updates prices)
    * Catalonia allows for independence talks with Madrid
    * U.S. inflation data later this week in focus
    * Treasury to sell $56 billion in supply this week

    By Karen Brettell
    NEW YORK, Oct 10 (Reuters) - U.S. Treasury prices pared
gains on Tuesday after Catalonia's leader proclaimed
independence for the region but suspended the effects pending
talks, easing some immediate concerns about violent clashes on
the issue.
    Carles Puigdemont stopped short of seeking the explicit
support of the chamber for the declaration of independence,
allowing for talks with the Madrid government.             
    “They temporarily kicked the can (down the road) on
Catalonia,” said Aaron Kohli, an interest rate strategist at BMO
Capital Markets in New York.
    Catalonia's efforts to secede have stoked concerns about
populist movements in the euro zone that could damage the bloc’s
economic strength and single currency.
    If the region splits from Spain "that is going to create
economic disruption, and that's bad for the Spanish economy and
the euro zone as a whole," said Mary Ann Hurley, vice president
in fixed income trading at D.A. Davidson in Seattle.
    Benchmark 10-year Treasury notes            were up 7/32 in
price to yield 2.343 percent after falling as low as 2.319
    Investors were also focused on who is likely to be the next
Federal Reserve Chair, after Fed Governor Jerome Powell was
reported as cancelling a speech scheduled for Friday.
    It “instantly had the implication of everyone thinking he’s
going to be nominated and doesn’t want to speak,” said Kohli.
    Powell is viewed as a frontrunner for the job along with
former governor Kevin Warsh, who is seen as more hawkish.
    The Fed will release minutes from its September policy
meeting on Wednesday.
    Producer price data on Thursday and consumer price data on
Friday will next be in focus for any signs of higher prices,
after the government’s employment report for September showed a
rise in wages that boosted expectations that inflation is
    Benchmark 10-year Treasury yields briefly jumped to 2.402
percent on the data on Friday, the highest since May 1.
    Some analysts have said that September's rise in wages may
be because adverse weather impeded lower-income workers from
getting to work more than it did higher-income workers.
    "The data is really very hard to read right now because it’s
hurricane-impacted," Hurley said.
    The Treasury will sell $56 billion in new coupon-bearing
supply this week, including $24 billion in three-year notes and
$20 billion in 10-year notes on Wednesday, and $12 billion in
30-year bonds on Thursday.

 (Reporting by Karen Brettell in New York; Editing by James
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