October 12, 2018 / 3:17 PM / in 5 days

TREASURIES-Yields recover as U.S. stocks stage rebound

    * U.S. 10-year, 30-year yields on track for weekly fall 
    * Univ. of Michigan 5-year inflation outlook falls in Oct
    * U.S. import prices rise

 (Recasts, adds comments, table, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 12 (Reuters) - U.S. Treasury yields rose on
Friday, rebounding from the previous session on Wall Street's
selloff, as equities staged a strong recovery globally and
investors unwound safe-haven bids. 
    Market participants were, however, skeptical that rates
could go higher again as quickly as they did last week.
    Yields on benchmark U.S. 10-year notes this week have fallen
nearly 7 basis points and the 30-year has slid 6 basis points,
on track for their largest weekly fall in roughly two months.
    After a two-day rout, shares on Wall Street were higher.
    "It's not unusual for Treasuries to give back some of their
gains as stocks recover," said Lou Brien, market strategist, at
DRW Trading in Chicago
    "The market will definitely re-test the highs in yields, but
I don't know how high they can go. I don't think they can go
much higher," he added.
    In morning trading, U.S. 10-year note yields were at 3.163
percent, up from 3.131 percent late Thursday.
    U.S. 30-year bond yields rose to 3.336 percent,
from Thursday's 3.305 percent. 
    On the short end of the curve, U.S. two-year yields were at
2.852 percent, up from 2.84 percent on Thursday.
    Some market participants think a U.S. 10-year yield between
3.0 to 3.25 percent was unsustainable. 
    "The long-end moves to the beat of inflation and inflation
expectations and those are relatively low and well-anchored,"
said DRW's Brien. 
    For instance, the University of Michigan consumer sentiment
report on Friday showed a preliminary index for October of 99,
slightly lower than expectations. But more importantly, the
five-year inflation outlook component of the survey, a key
measure that the Fed looks at, was at 2.3 versus 2.5 in
September.
    Jon Hill, rates strategist, at BMO Capital Markets in New
York said that the 2.3 reading on inflation outlook was tied for
the lowest level on record.
    "With (Fed Chair Jerome) Powell's focus on series such as
this as a 'key' input for monetary policy, this will serve as a
dovish talking point, and help keep long tenor yields in check,"
Hill said. 
    The University of Michigan report followed U.S. data on
Thursday that also showed tame inflation: A weaker-than-expected
rise in U.S. consumer prices for September in both the headline
and core number.
    Earlier in the session, a report showed U.S. import prices
grew at a faster pace than expected last month..
    The data pushed Treasury yields slightly higher.
    
      October 12 Friday 10:38 AM New York / 1438 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.2275       2.2707    0.005
 Six-month bills               2.385        2.447     0.005
 Two-year note                 99-204/256   2.857     0.017
 Three-year note               99-204/256   2.9462    0.019
 Five-year note                99-92/256    3.0149    0.028
 Seven-year note               99-92/256    3.1029    0.030
 10-year note                  97-144/256   3.1651    0.034
 30-year bond                  93-164/256   3.3381    0.033
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.00         0.00    
 spread                                               
 U.S. 3-year dollar swap        16.50         0.25    
 spread                                               
 U.S. 5-year dollar swap        12.25        -0.50    
 spread                                               
 U.S. 10-year dollar swap        4.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -10.50         0.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jeffrey
Benkoe)
  
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