July 14, 2020 / 7:28 PM / a month ago

TREASURIES-Yields and inflation expectations dip as consumer prices stay benign

 (Adds inflation expectations, Fed speakers, updates prices)
    By Karen Brettell
    NEW YORK, July 14 (Reuters) - U.S. Treasury yields and
inflation expectations both dipped on Tuesday after data showed
that core inflation remained well under the Fed’s target in
June.
    U.S. consumer prices rebounded by the most in nearly eight
years in the month, but a resurgence in new COVID-19 cases after
the reopening of businesses suggests a moderation in demand that
could keep inflation muted and allow the Federal Reserve to keep
injecting money into the ailing economy.
    Core inflation rose 0.2% on the month but remained at 1.2%
on the year, below the Fed’s target of 2%.
    “I think broadly speaking the market’s really focused on the
core year-on-year,” said Subadra Rajappa, head of U.S. interest
rate strategy at Societe Generale in New York. “Markets (are)
coming to the realization that inflation is perhaps going to be
well below the 2% target for the foreseeable future.”
    Benchmark 10-year yields fell three basis points
to 0.615%. The yield curve between two-year and 10-year notes
 was little changed on the day at 46 basis points.
    Breakeven rates on 10-year Treasury Inflation-Protected
Securities (TIPS), which measure expected
inflation, fell to 1.376%, from 1.382%.
    Yields on the 10-year TIPS, known as “real yields” as they
adjust for expected inflation, have dropped to minus 0.80% from
minus 0.40% at the beginning of June as inflation expectations
rise.
    But the drop in real yields also reflects concerns about
growth going forward, said Rajappa.
    “It doesn’t really send a very positive sign on real growth
over the longer run,” she said.
    Fed officials also expressed growth concerns on Tuesday. 
    There is a great deal of uncertainty about the path ahead
for the U.S. economy and the Fed should use forward guidance and
large-scale asset purchases for a "sustained" period in order to
help the recovery, Fed Governor Lael Brainard said.
    U.S. unemployment could rise again as businesses adjust to a
likely longer recession than first anticipated, and initiatives
like the Paycheck Protection Program expire, Richmond Fed
president Thomas Barkin said.
    Data on Monday showed that the year-to-date U.S. fiscal
deficit soared to $2.7 trillion in June as the government spends
on coronavirus relief programs and sees a drop in individual and
corporate tax receipts. This far eclipsed the previous full-year
record of $1.4 trillion in 2009.
    
      July 14 Tuesday 3:01PM New York / 1901 GMT
                               Price                  
 US T BONDS SEP0               180-8/32     0-20/32   
 10YR TNotes SEP0              139-108/256  0-52/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.1425       0.1445    0.000
 Six-month bills               0.145        0.1471    -0.008
 Two-year note                 99-241/256   0.155     -0.004
 Three-year note               99-214/256   0.1799    -0.008
 Five-year note                99-214/256   0.2833    -0.015
 Seven-year note               100-64/256   0.4634    -0.021
 10-year note                  100-24/256   0.6151    -0.025
 20-year bond                  100-192/256  1.0829    -0.028
 30-year bond                  98-172/256   1.3039    -0.033
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         6.50         0.25    
 spread                                               
 U.S. 3-year dollar swap         4.50         0.00    
 spread                                               
 U.S. 5-year dollar swap         3.25         0.00    
 spread                                               
 U.S. 10-year dollar swap       -2.50        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -47.00        -0.50    
 spread                                               
                                                      
 

    

 (Reporting by Karen Brettell; editing by Jonathan Oatis)
  
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