* U.S. yield curve flattens from widest level in a month
* N.Y. Fed business index falls unexpectedly in October
* Traders await speech from Fed Vice Chair Fischer
* Companies plan to sell $25 bln in bonds this week - IFR
By Richard Leong
NEW YORK, Oct 17 U.S. Treasury yields fell on
Monday, pulling back from four-month highs, as bargain-minded
investors bought bonds whose prices had fallen after Federal
Reserve Chair Janet Yellen said last week the central bank may
tolerate inflation above its 2-percent goal.
A surprise drop in a New York Federal Reserve gauge on
regional business activity in October also supported demand for
bonds by undercutting investor confidence in the U.S. economy.
"People see decent value at these levels," said Sharon
Stark, fixed-income strategist at Incapital LLC in Boca Raton,
Benchmark 10-year Treasury notes were up 3/32 in price for a
yield of 1.782 percent, down 1 basis point from late Friday. It
reached 1.814 percent earlier Monday, which was the highest
since June 2, according to Reuters data.
Yellen said on Friday the question was whether the damage
following the financial crisis of 2008-2009 could be undone "by
temporarily running a 'high-pressure economy,' with robust
aggregate demand and a tight labor market."
Some traders interpreted her remarks as suggesting the
central bank may consider allowing inflation to run above the
Fed's 2.0 percent target. They sold more longer-dated Treasuries
than short-term ones in reaction to Yellen's comments, pushing
their spreads to their widest in about a month.
The yield spread between five-year and 30-year Treasuries
reached 129 basis points earlier Monday before retreating to 127
basis points, which was a tad tighter than Friday.
Meanwhile, the decline in Treasury yields was mitigated by a
strong supply of corporate bonds with an expected $25 billion of
investment-grade issues to hit this week, according to IFR, a
unit of Thomson Reuters.
While economic data has been mixed, traders reckoned the Fed
remained on track for a possible rate increase at its Dec. 13-14
"The chance for a rate hike in December is pretty high,"
U.S. interest rates futures implied traders saw nearly a 70
percent chance of a rate hike in December, little changed from
late Friday, according to CME Group's FedWatch program.
Looking ahead, traders are awaiting possible clues on the
timing of a Fed rate hike from Fed Vice Chair Stanley Fischer
who will be delivering a speech in New York at 12:15 p.m. (1615
October 17 Monday 9:57AM New York / 1357 GMT
US T BONDS DEC6 163-28/32 0-21/32
10YR TNotes DEC6 130-20/256 0-56/256
Price Current Net
Yield % Change
Three-month bills 0.3 0.3044 0.000
Six-month bills 0.4425 0.4496 -0.002
Two-year note 99-222/256 0.8187 -0.020
Three-year note 100-16/256 0.9787 -0.021
Five-year note 99-90/256 1.2605 -0.021
Seven-year note 98-200/256 1.5607 -0.026
10-year note 97-140/256 1.773 -0.019
30-year bond 94-48/256 2.5286 -0.026
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 22.75 -0.25
U.S. 3-year dollar swap 14.00 0.00
U.S. 5-year dollar swap 1.00 0.00
U.S. 10-year dollar swap -17.50 -0.50
U.S. 30-year dollar swap -56.75 -0.25
(Reporting by Richard Leong; Editing by Bernadette Baum)