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NEW YORK, April 17 The U.S. bond market's gauges
on inflation expectations on Monday fell to their lowest levels
since December, signaling investors are scaling back bets the
Federal Reserve might raise interest rates faster.
A drop in oil futures prices and a surprise drop in
the government's consumer price index (CPI) in March put
pressure on inflation "breakeven" rates, which are the yield
differences between Treasury Inflation Protected Securities
(TIPS) and regular U.S. government debt.
A pullback in inflation expectations coincides with a fading
view about faster U.S. economic growth due to possible tax cuts
and infrastructure spending from Washington, analysts said.
"We have been cautious on TIPS breakevens, especially
front-end, for a few weeks now as we believed that once we
cleared CPI base-effects from oil and general reflation theme
fades as it largely has in bond market that (breakeven rates)
would reprice and get dragged lower by the rally," said George
Goncalves, head of U.S. rates at Nomura Securities International
in New York.
On Friday, the government said the CPI declined 0.3 percent
in March, the first fall in 13 months and biggest decrease since
January 2015 due to lower prices for gasoline and mobile phone
services, which offset rising rents and food costs.
TIPS' principal and interest payments are benchmarked
against the CPI.
Still money has continued pouring into TIPS-focused funds,
underpinned by the notion inflation could accelerate in a
faster-growing economy under U.S. President Donald Trump and a
In the week ended April 12, TIP fund assets grew to $61.89
billion, down from $61.93 billion in the previous week but up
from $56.83 billion at the end of 2016, according to Lipper, a
unit of Thomson Reuters.
The 10-year inflation breakeven rate, or the yield
difference between 10-year Treasury Inflation Protected
Securities and regular 10-year Treasury notes, was last at 1.89
percent, down 3 basis points from Thursday. It touched 1.88
percent earlier Monday, which was the lowest since Dec. 20,
Tradeweb and Reuters data showed.
U.S. financial markets were closed for the Good Friday
The five-year TIPS breakeven rate fell over 5 basis points
at 1.81 percent after touching 1.79 percent which was the lowest
since Dec. 20.
U.S. oil futures settled down 53 cents or 1 percent at
$52.65 a barrel.
(Reporting by Richard Leong; Editing by Chizu Nomiyama and