November 24, 2017 / 2:42 PM / a year ago

TREASURIES-Yields higher in light trading, inflation in focus

    * Bond market to close early after Thanksgiving holiday
    * Inflation in focus, personal consumption data due next
    * Treasury to sell $88 bln new supply next week

    By Karen Brettell
    NEW YORK, Nov 24 (Reuters) - U.S. Treasury yields rose
slightly on Friday but stayed within a tight range they have
held in for the past week-and-a-half as investors focused on the
inflation outlook.
    Concern about stubbornly low inflation has boosted
longer-dated debt and sent the U.S. Treasury yield curve to its
flattest levels in a decade.
    Minutes from the Federal Reserve’s most recent meeting,
which were released on Wednesday, showed some of the members who
vote on policy expressed concern over the inflation outlook,
though most agreed that tightness in the labor market would
likely fuel higher inflation in the medium term.             
    “There was a little bit more concern within the committee
with the state of inflation and its potential to return to
normal levels,” said Ian Lyngen, head of U.S. rates strategy at
BMO Capital Markets in New York.
    Benchmark 10-year notes             were last down 4/32 in
price to yield 2.34 percent, up from 2.32 percent on Wednesday.
The yields have held between 2.32 percent and 2.38 percent since
Nov. 15.
    The yield curve between two-year and 10-year notes
               was 59 basis points, just above the 57 basis
point level reached on Tuesday, which was the flattest since
late 2007.
    Trading was subdued with many traders out after Thursday’s
Thanksgiving holiday. The bond market will close early on Friday
at 2 p.m. EST. (1900 GMT)
    Yields rose earlier on Friday in line with German government
bonds after Germany's Social Democrats bowed to pressure from
across the political spectrum on Friday to help form a new
government led by Chancellor Angela Merkel.
    The turnabout by the centre-left party could help avert a
disruptive repeat election in Europe's economic and political
    Black Friday retail sales will be watched for further clues
about consumer spending and the strength of the U.S. economy.
    “It is always a make or break period for a lot of retailers
and that will be an important indicator as people think about
the health of the economy in the year ahead,” Lyngen said.
    Next week is likely to bring bond buying for month-end
extensions, while the Treasury Department is due to sell $88
billion in short- and intermediate-dated supply.
    This will include $26 billion in two-year notes, $34 billion
in five-year notes and $28 billion in seven-year notes.
    Next week’s data will include personal income and spending,
which will be watched for any signs that inflation may be
picking up.

 (Editing by Chizu Nomiyama)
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