October 11, 2018 / 2:25 PM / 2 months ago

TREASURIES-Yields slide to one-week low as U.S. stocks in focus

    * U.S. CPI data comes out weaker than expected
    * U.S. stocks higher after Wednesday's sell-off
    * Markets await U.S. 30-year auction

 (Recasts, adds comment, table, details, updates prices)
    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
amid a sell-off in global stocks spurred by a sharp drop on Wall
Street overnight.
    A weaker-than-expected rise in U.S. inflation for September
also added to the bullish tone to Treasuries and may have partly
paused expectations of a more aggressive Federal Reserve in
terms of raising interest rates.
    But investors on Thursday kept a closer eye on U.S. stocks
after the previous day's fall, partly triggered by prospects for
rising rates. Wall Street shares traded mixed on the day on
Thursday in choppy trading.
    Analysts said it will take more than a daily stock market
correction to stop the Fed from hiking.
    "The market is not necessarily going to take out much from
the yield path," said George Goncalves, managing director and
head of fixed income strategy at Nomura in New York.
    "I don't view this as an indication that there's a turn in
the market. I just think it's natural to see bonds rally after a
big equity move," he added.
    The softer-than-forecast U.S. consumer prices data was also
not a deterrent to the Fed's tightening stance, analysts said.
    The Consumer Price Index increased 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. The so-called core index had increased
0.2 percent in May, June and July.
    Nomura's Goncalves 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," the Nomura strategist said.
    "It takes away some of the concern that inflation is
accelerating, but not enough to turn us back into rally mode,"
he added.
    In morning trading, U.S. 10-year note yields were last at
3.181 percent, down from 3.225 percent late on
Wednesday. Earlier in the global session, 10-year yields hit a
one-week low of 3.142 percent.
    U.S. 30-year bond yields also fell to 3.364 percent
, versus Wednesday's 3.401 percent. The yield earlier
dropped to 3.329 percent, the lowest since Oct. 3.
    On the short end of the curve, U.S. two-year yields were up
at 2.869 percent, slightly down from 2.881 percent on
Wednesday.
    The market is now looking to the Treasury's auction of $15
billion in re-opened U.S. 30-year bonds. So far the U.S. 3- and
10-year sales auctions held on Wednesday were lackluster,
analysts said.
    
      October 11 Thursday 10:11AM New York / 1411 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.2275       2.2711    -0.003
 Six-month bills               2.3925       2.4553    0.007
 Two-year note                 99-198/256   2.869     -0.012
 Three-year note               99-192/256   2.9627    -0.024
 Five-year note                99-74/256    3.0301    -0.031
 Seven-year note               99-64/256    3.1205    -0.041
 10-year note                  97-104/256   3.1837    -0.041
 30-year bond                  93-64/256    3.3598    -0.041
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.00         0.25    
 spread                                               
 U.S. 3-year dollar swap        16.50        -0.25    
 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      -10.75         0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Chizu Nomiyama)
  
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