April 10, 2018 / 2:39 PM / a year ago

TREASURIES-Yields mostly up after stronger-than-expected U.S. producer prices

    By Gertrude Chavez-Dreyfuss
    NEW YORK, April 10 (Reuters) - U.S. Treasury yields on
Tuesday were mostly higher after the latest data showed a
pick-up in inflation last month in terms of producer prices,
which rose more than expected.
    However, U.S. 30-year yields, which move inversely to
prices, inched lower as the yield curve continued to flatten as
investors priced-in interest rates hikes this year. 
    The U.S. 5-year and U.S. 30-year yield curve has flattened
to 39.6 basis points. That's the narrowest gap
since late December 2011.
    "The front-end continues to be under a little bit of
pressure. We got some positive data on the PPI (producer prices
index) front," said Subadra Rajappa, head of U.S. rates
strategy, at Societe Generale in New York.
    "We have inflation data coming tomorrow and the key focus
for the market is whether there would be confirmation of a
sustained path to the higher inflation," she added.
    Data showed on Tuesday that U.S. producer prices increased
more than expected in March, boosted by a rise in the cost of
services such as healthcare and airline fees. The producer price
index for final demand rose 0.3 percent last month after
increasing 0.2 percent in February.
    Risk appetite was also on the mend on Tuesday after Chinese
President Xi Jinping set a positive tone for easing trade
tensions between the United States and China. He promised to
open the country's economy further and lower import tariffs on
products including cars.
    That boosted Wall Street stocks, but was hardly a factor in
the Treasury market, analysts said, as investors focused on the
U.S. inflation outlook with both producer and consumer prices on
tap this week.
    In mid-morning trading, the U.S. 10-year yields were up
slightly at 2.797 percent, from 2.789 percent late
on Monday.
    U.S. 30-year yields, however, slipped to 3.015 percent
, from Monday's 3.017 percent.
    On the front end of the curve, U.S. 2-year yields edged up
to 2.302 percent, compared with 2.286 percent on
    U.S. 3-year yields also inched higher to 2.435 percent
, from Monday's 2.419 percent. 
    The U.S. Treasury is also set to auction later on Tuesday
$30 billion in U.S. 3-year notes.
    Action Economics noted in its blog that the sale could see
lukewarm demand, noting that U.S. auctions of late haven't fared
as well as those in Europe. 
    "Demand for Treasuries has generally been waning over the
past 12 months, with headwinds coming from the Fed's tightening
rate posture and balance sheet unwinds, factors which have often
overshadowed higher rates," Action Economics said. 
      April 10 Tuesday 10:26AM New York / 1426 GMT
 US T BONDS JUN8               145-31/32    -0-3/32   
 10YR TNotes JUN8              120-200/256  -0-32/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.715        1.7465    -0.002
 Six-month bills               1.885        1.9296    0.003
 Two-year note                 99-228/256   2.3069    0.021
 Three-year note               99-208/256   2.4415    0.023
 Five-year note                99-114/256   2.6197    0.019
 Seven-year note               99-72/256    2.7389    0.018
 10-year note                  99-152/256   2.7972    0.011
 30-year bond                  99-164/256   3.0182    0.001
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        30.25        -0.50    
 U.S. 3-year dollar swap        24.50        -0.75    
 U.S. 5-year dollar swap        12.75        -0.25    
 U.S. 10-year dollar swap        2.25         0.00    
 U.S. 30-year dollar swap      -15.25         0.75    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski)
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