* U Mich March data shows soft U.S. inflation
* Data suggests risk of more dovish Fed
* Yields set for biggest weekly drops in three
By Sam Forgione
NEW YORK, March 17 U.S. Treasury yields edged
lower on Friday after data showing low inflation in March
suggested that the Federal Reserve could aim for a slower pace
of interest rate hikes this year than it had forecast on
U.S. 30-year and 10-year Treasury
yields, which benefit from low inflation since reduced
purchasing power erodes their interest payouts, fell about two
basis points after preliminary University of Michigan data
showing low inflation in early March.
Traders are watching inflation closely for clues on the
Fed's path of rate hikes. The Fed disappointed expectations for
a more hawkish pace of rate increases when it stuck to its
outlook for just two more hikes this year and three more in 2018
following a two-day policymaking meeting on Wednesday.
"The reason for the rates rally in the aftermath was the
5-10 year inflation print which fell to a record low of 2.2
percent, which was the lowest level since the survey started in
1979," said Aaron Kohli, an interest rate strategist at BMO
Capital Markets in New York, in a research note.
Yields remained within recent ranges and did not break below
Thursday's session lows. Two-year notes, which are
considered most vulnerable to Fed policy, were last up slightly
in price to yield 1.313 percent, from a yield of 1.324 percent
The data came after the Fed also raised rates for the second
time in three months on Wednesday, as expected. The data,
showing slowing inflation, posed a risk to a more hawkish Fed
hiking cycle, analysts said.
"A lack of inflationary pressures might restrain the Fed,"
said Kim Rupert, managing director for fixed income at Action
Economics in San Francisco.
Benchmark 10-year Treasuries were last up 7/32 in price to
yield 2.499 percent, from a yield of 2.524 percent late
Thursday. Those yields hit a 10-day low of 2.486 percent in
overnight trading Thursday and were last on track to post their
biggest weekly decline in three, of about nine basis points.
Yields on other Treasuries maturing between two and 30 years
were also set to post their biggest weekly drop in three weeks,
with two-year yields last on track to fall about five basis
points for the week.
March 17 Friday 11:12AM New York / 1512 GMT
US T BONDS JUN7 148-13/32 0-17/32
10YR TNotes JUN7 123-208/256 0-56/256
Price Current Net
Yield % Change
Three-month bills 0.725 0.7364 0.002
Six-month bills 0.86 0.8757 0.000
Two-year note 99-164/256 1.3126 -0.011
Three-year note 100-22/256 1.5954 -0.017
Five-year note 99-96/256 2.0083 -0.022
Seven-year note 98-226/256 2.2999 -0.026
10-year note 97-212/256 2.4987 -0.025
30-year bond 97-212/256 3.112 -0.023
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 33.25 0.00
U.S. 3-year dollar swap 25.25 0.50
U.S. 5-year dollar swap 10.50 0.75
U.S. 10-year dollar swap -3.50 0.50
U.S. 30-year dollar swap -38.25 1.00
(Editing by Bernadette Baum)