June 14, 2017 / 2:55 PM / a month ago

TREASURIES-Most yields hit lowest since Nov. after weak U.S. data

5 Min Read

    * U.S. CPI dips 0.1 percent in May
    * U.S. retail sales fall 0.3 percent in May
    * Weak U.S. data reduces bets on third 2017 Fed rate
increase
    * Fed to release policy decision at 2 p.m EDT (1800 GMT)

    By Sam Forgione
    NEW YORK, June 14 (Reuters) - Medium- and long-dated U.S.
Treasury yields fell to their lowest levels since November on
Wednesday after disappointing U.S. inflation and retail sales
data reduced expectations that the Federal Reserve would raise
interest rates in the second half of the year. 
    The Fed is expected to raise interest rates for the second
time this year later on Wednesday, but the signs of moderate
consumer spending and retreating inflation pressures could worry
policymakers who have previously viewed the softness as
transitory. 
    The central bank is scheduled to release its decision at 2
p.m EDT (1800 GMT) at the conclusion of its two-day policy
meeting. Fed Chair Janet Yellen is due to hold a news conference
at 2:30 pm EDT (1830 GMT).
    The Labor Department said its Consumer Price Index dipped
0.1 percent in May. The so-called core CPI, which strips out
food and energy costs, increased 1.7 percent year-on-year, the
smallest rise since May 2015. 
    In the 12 months through May, the CPI increased 1.9 percent,
the smallest increase since last November. The Fed has a 2
percent inflation target and tracks an inflation measure which
is currently at 1.5 percent. 
    In a separate report, the Commerce Department said retail
sales fell 0.3 percent last month.
    "We think this effectively takes September off the table,"
said Ian Lyngen, head of U.S. rates strategy at BMO Capital
Markets in New York, in reference to the impact of the data on
the probability of a September Fed rate increase. 
    U.S. interest rates futures rose after the data, suggesting
traders reduced their bets on a possible third Fed interest rate
increase in 2017.
    Benchmark 10-year Treasury yields and seven-year
yields hit their lowest levels since Nov. 10 of 2.120
percent and 1.928 percent, respectively, while 30-year yields
 hit their lowest since Nov. 9 of 2.791 percent and
five-year yields hit their lowest since Nov. 17 of
1.689 percent. 
    U.S. three- and two-year yields, which are considered most
vulnerable to Fed rate increases, hit one-week lows of 1.431
 percent and 1.303 percent, respectively. 
    "The CPI core, along with the PCE core inflation measures,
are starting to look like that whole story of returning to a 2
percent target is more wishful thinking than a solid outlook,"
said Lou Brien, a market strategist at DRW Trading in Chicago.
    
    June 14 Wednesday 10:27AM New York / 1427 GMT
                               Price                  
 US T BONDS SEP7               155-19/32    1-18/32   
 10YR TNotes SEP7              127-20/256   0-180/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.9875       1.0037    -0.005
 Six-month bills               1.0925       1.1138    -0.015
 Two-year note                 99-228/256   1.3067    -0.056
 Three-year note               100-46/256   1.4386    -0.066
 Five-year note                100-64/256   1.6972    -0.083
 Seven-year note               100-108/256  1.9349    -0.084
 10-year note                  102-56/256   2.1255    -0.082
 30-year bond                  104-40/256   2.794     -0.068
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.75         0.00    
 spread                                               
 U.S. 3-year dollar swap        17.75         0.00    
 spread                                               
 U.S. 5-year dollar swap         9.25         0.50    
 spread                                               
 U.S. 10-year dollar swap       -2.25         0.50    
 spread                                               
 U.S. 30-year dollar swap      -38.25         1.75    
 spread                                               
 
 (Reporting by Sam Forgione; Editing by Nick Zieminski)
  

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