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TREASURIES-U.S. yields slide after inflation data in risk-off backdrop

NEW YORK, July 30 (Reuters) – U.S. Treasury yields fell on Friday, as risk aversion reigned in financial markets once again after an earnings miss from tech giant weighed on stocks, and amid nagging concerns about the economic impact of the raging Delta coronavirus variant. Friday’s U.S. data also showed core inflation rising less than forecast in June, setting back expectations that the Federal Reserve would reduce its asset purchases soon. That has pushed yields lower as well. The yield curve, a gauge of economic sentiment and rate move expectations, flattened to 105 basis points, as measured by the spread between two-year and 10-year yields. Data showed that the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.4% in June, or 3.5% in the 12 months through June. Economists polled by Reuters had forecast the core PCE price index surging 3.7% year-on-year. The core PCE price index is the Federal Reserve’s preferred inflation measure for its flexible 2% target. “The weaker-than-expected inflation data will probably affirm the view that the Fed is not moving toward tighter policy anytime soon,” said Zachary Griffiths, macro strategist at Wells Fargo Securities in Charlotte, North Carolina. “This could push out expectations for when the taper will be announced and eventually enacted,” he added. The Fed on Wednesday, after a two-day meeting said higher inflation remained the result of “transitory factors,” and was not an imminent risk to the economy or the Fed’s policy plans. In mid-morning trading, the U.S. 10-year Treasury yield was down at 1.232%, compared with 1.269% late on Thursday. The highly-contagious Delta variant has prompted the U.S. Centers for Disease Control and Prevention (CDC) to change its guidance on mask wearing, reinstituting it as a precaution against the possible transmission of the virus by fully vaccinated people. “A year and a half into this pandemic, and when it looked as if the United States was on its way to smooth sailing, the water has once again become muddied,” said Gregory Faranello, head of U.S. rates at Amerivet Securities in New York. U.S. stocks were also lower on the day following a glum quarterly earnings report from Amazon. U.S. 30-year yields fell to 1.891% from Thursday’s 1.916%. In other parts of the Treasury market, the yield on 10-year Treasury Inflation-Protected Securities (TIPS) plunged to a another record low of -1.176% US10YTIP=RR, as investors priced in higher inflation going forward. The U.S. 10-year inflation breakeven, the bond market’s gauge of investors’ price outlook over the next 10 years, was down at 2.397% from Thursday’s 2.418%. In mid-May, 10-year breakeven inflation hit 2.564%, the highest since March 2013. July 30 Friday 10:39 AM New York / 1439 GMT Price Current Net Yield % Change (bps) Three-month bills 0.045 0.0456 0.000 Six-month bills 0.0525 0.0532 0.000 Two-year note 99-223/256 0.1898 -0.011 Three-year note 100-18/256 0.351 -0.019 Five-year note 99-162/256 0.6999 -0.030 Seven-year note 99-248/256 1.0046 -0.039 10-year note 103-160/256 1.2306 -0.038 20-year bond 107-100/256 1.8041 -0.031 30-year bond 111 1.8903 -0.026 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 0.50 spread U.S. 3-year dollar swap 12.00 0.25 spread U.S. 5-year dollar swap 9.00 0.25 spread U.S. 10-year dollar swap 2.50 -0.25 spread U.S. 30-year dollar swap -24.25 -0.50 spread (Reporting by Gertrude Chavez-Dreyfuss)


By: Gertrude Chavez-Dreyfuss

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