July 14, 2020 / 2:13 PM / a month ago

TREASURIES-Yields dip as inflation stays benign, stocks weaken

    By Karen Brettell
    NEW YORK, July 14 (Reuters) - U.S. Treasury yields fell on
Tuesday after data showed that core inflation remained well
under the Fed’s target and as stocks opened lower.
    U.S. consumer prices rebounded in June after three straight
monthly declines as businesses reopened, but the underlying
trend suggested inflation would remain 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.”
    Weaker stocks also added a bid for safe haven bonds. Wall
Street opened lower following a mixed bag of quarterly earnings
from U.S. lenders and simmering tensions between Washington and
Beijing, while new coronavirus restrictions in California hit
tech stocks for a second straight day.
    Benchmark 10-year yields fell three basis points
to 0.609%. The yield curve between two-year and 10-year notes
 flattened one basis point to 45 basis points.
    Yields on 10-year  Treasury Inflation-Protected Securities
(TIPS) fell two basis points to minus 0.81%.
    These yields, which are known as “real yields” as they
adjust for impact of expected inflation, have dropped from minus
0.40% at the beginning of June on rising inflation expectations.
    The move also reflects concerns about growth going forward,
said Rajappa.
    “You’re looking at negative 80 basis points in real yields.
It doesn’t really send a very positive sign on real growth over
the longer run,” she said.
    Concerns about growth also come as the U.S. government racks
up a record deficit as it spends on coronavirus relief programs
and sees a drop in individual and corporate tax receipts.
    Data on Monday showed that the U.S. federal budget deficit
in June surged to $864 billion from single digits a year
earlier. The June deficit brought the year-to-date fiscal
deficit to $2.7 trillion, far eclipsing the previous full-year
record of $1.4 trillion in 2009.
    July 14 Tuesday 9:47AM New York / 1347 GMT
 US T BONDS SEP0               180-16/32    0-28/32   
 10YR TNotes SEP0              139-108/256  0-52/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.1425       0.1445    0.000
 Six-month bills               0.15         0.1522    -0.003
 Two-year note                 99-243/256   0.151     -0.008
 Three-year note               99-216/256   0.1772    -0.011
 Five-year note                99-218/256   0.2802    -0.018
 Seven-year note               100-68/256   0.4612    -0.023
 10-year note                  100-40/256   0.6086    -0.031
 20-year bond                  100-252/256  1.0698    -0.041
 30-year bond                  99           1.2905    -0.046
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap         6.75         0.50    
 U.S. 3-year dollar swap         4.75         0.25    
 U.S. 5-year dollar swap         3.00        -0.25    
 U.S. 10-year dollar swap       -2.50        -0.50    
 U.S. 30-year dollar swap      -47.25        -0.75    


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