July 18, 2019 / 1:32 PM / a month ago

TREASURIES-Yields rise after mid-Atlantic factory activity rebounds

    * Philly Fed index highest since July 2018
    * Report that ECB may change inflation goal

    By Karen Brettell
    NEW YORK, July 18 (Reuters) - U.S. Treasury yields rose on
Thursday after a Philadelphia manufacturing index rebounded
strongly in July, adding to recent data that shows an improving
U.S. economy.
    The Philadelphia Fed said that its index of business
conditions rose to the highest level in a year.             
    “The Philly Fed I think was the impetus for the move higher
in yields,” said Gennadiy Goldberg, an interest rate strategist
at TD Securities in New York. "There were some pretty solid
underlying fundamentals as well, so it does suggest that maybe
we are seeing a little bit of basing in some of the
manufacturing indices.”
    Benchmark 10-year notes             fell 3/32 in price to
yield 2.069%, up from 2.061% late Wednesday.
    Yields have risen from more than 2-1/2-year lows reached
earlier this month and the yield curve has steepened as jobs,
inflation and retail sales data show that the U.S. economy is
improving.
    The yield rise has been capped, however, by dovish global
central bank policy as the U.S.-China trade war weighs on the
international economic outlook.
    “We haven’t really seen global growth pick up in a material
way, trade volumes are still quite low, there are certainly dark
clouds on the horizon and those have not gone away,” Goldberg
said.
    The Federal Reserve is seen as certain to cut rates when it
meets later this month.
    Interest rate futures traders are pricing in a 65% chance of
a 25 basis point cut this month and a 35% likelihood of a 50
basis point cut, according to the CME Group’s FedWatch tool.
    The euro and government bond yields across the single
currency bloc fell on Thursday, following a report by Bloomberg
News that European Central Bank staff are studying a potential
change to the bank's inflation goal of 'near 2%'.             
    The report quoted sources as saying ECB staff were studying
the bank's approach informally, including whether a more
flexible target might be more appropriate in the post-crisis era
- potentially allowing inflation to stay higher for a certain
time.             

 (Editing by Susan Thomas)
  
 
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