October 11, 2018 / 7:50 PM / in 8 days

TREASURIES-Yields fall to one-week low as U.S. stocks sell off again

    * U.S. CPI data weaker than expected
    * Stocks fall, tame CPI not stopping Fed from hiking
-analyst
    * Markets await U.S. 30-year auction

 (Adds comment, 30-year auction results; updates prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 11 (Reuters) - U.S. Treasury yields fell to
one-week lows on Thursday, sliding for a second straight
session, as Wall Street shares dropped a day after posting steep
losses on worries about prospects for rising interest rates.
    A weaker-than-expected rise in U.S. inflation for September
also added to Treasuries bullish tone and may have partly
tempered expectations of more aggressive Federal Reserve  
interest rate hikes.
    Investors kept a close eye on U.S. stocks after the previous
day's fall. By late afternoon, Wall Street shares were down in
choppy trading.
    "Bonds are looking closely at what's going on in stocks and
therefore all news is bad news," said Stan Shipley, market
strategist, at Evercore ISI in New York.
    "Investors are saying that if stocks are this weak, there
must be a risk out there that I don't see. Bonds and stocks 
used to trade opposite each other, now they're trading with each
other," he added.
    Bond strategists though said the stocks fall should not stop
the Fed from hiking. 
    Thursday's softer-than-forecast U.S. consumer prices data
weighed on yields as well, but analysts said this should also
not deter the Fed from its rate path.
    The U.S. Consumer Price Index rose 0.1 percent last month
after rising 0.2 percent in August. Excluding the volatile food
and energy components, the CPI edged up 0.1 percent for the
second straight month, after gaining 0.2 percent in May, June
and July.
    George Goncalves, managing director and head of fixed income
strategy at Nomura in New York, said the tame inflation data
could slow the momentum in yields, but the Fed will continue
lifting rates.
    "It does make people think that it (inflation) is not
imminent of a danger and therefore the Fed will maintain its
gradual pace of every quarter," he said. "It takes away some of
the concern that inflation is accelerating, but not enough to
turn us back into rally mode."
    The U.S. 30-year auction, meanwhile, saw solid demand, with
the bond picking up a yield of 3.344 percent, the highest at an
auction for this maturity since July 2014. The ratio of bids to
the amount of supply offered was 2.42, the strongest since
January, compared with 2.34 at the previous 30-year sale in
September.
    In late afternoon trading, U.S. 10-year note yields were at
3.142 percent, down from 3.225 percent late on
Wednesday. Earlier in the global session, 10-year yields hit a
one-week low of 3.124 percent.
    U.S. 30-year bond yields fell to 3.316 percent,
versus Wednesday's 3.401 percent. The yield earlier dropped to
3.229 percent, the lowest since Oct. 3.
    On the short end of the curve, U.S. two-year yields were at
2.852 percent, down from 2.881 percent on Wednesday.
    
      October 11 Thursday 3:36PM New York / 1936 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.2225       2.266     -0.008
 Six-month bills               2.38         2.4423    -0.006
 Two-year note                 99-206/256   2.8525    -0.029
 Three-year note               99-208/256   2.9408    -0.046
 Five-year note                99-110/256   2.9993    -0.062
 Seven-year note               99-120/256   3.0852    -0.077
 10-year note                  97-196/256   3.1404    -0.085
 30-year bond                  94-28/256    3.3121    -0.089
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.75         0.00    
 spread                                               
 U.S. 3-year dollar swap        16.25        -0.50    
 spread                                               
 U.S. 5-year dollar swap        12.75         0.50    
 spread                                               
 U.S. 10-year dollar swap        4.50         0.25    
 spread                                               
 U.S. 30-year dollar swap      -10.25         1.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu
Nomiyama and Susan Thomas)
  
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