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TREASURIES-Yields dip as U.S. data fuels doubts over Fed rate hikes
June 16, 2017 / 7:28 PM / 5 months ago

TREASURIES-Yields dip as U.S. data fuels doubts over Fed rate hikes

    * U.S. May housing starts weaker than expected
    * Data compounds doubts over third Fed rate hike in 2017
    * Treasuries broadly post weekly declines

 (Updates prices)
    By Sam Forgione
    NEW YORK, June 16 (Reuters) - U.S. Treasury yields edged
lower on Friday, with all maturities posting weekly declines,
after weaker-than-expected U.S. housing data fueled doubts that
the Federal Reserve will be able to raise interest rates again
this year.
    U.S. housing starts dropped 5.5 percent to a seasonally
adjusted annual rate of 1.09 million units in May, the Commerce
Department said on Friday. That was the lowest since September
2016. Economists polled by Reuters had forecast groundbreaking
activity rising to a rate of 1.22 million units.
    Analysts said the data compounded concerns about the
underlying health of the U.S. economy after government figures 
on inflation and retail sales for May, released on Wednesday,
fell well short of market expectations.
    The data also reinforced traders' doubts, analysts said,
that the Fed would be able to hike interest rates again this
year, as the U.S. central bank projected Wednesday, when it
raised rates for the second time in 2017.
    "If housing is weak, then economic growth is going to be
weaker, too," said Stan Shipley, fixed income strategist at
Evercore ISI in New York. "The Fed may be a little more cautious
hiking in that environment."
    Benchmark 10-year Treasuries were last up 2/32
in price to yield 2.155 percent, compared with 2.162 percent
late Thursday. Two-year Treasuries were last up 2/32
in price to yield 1.319 percent, compared with 1.355 percent
late Thursday.
    Traders are particularly concerned about soft U.S. inflation
readings, which have been viewed as an obstacle to the Fed's
plan, outlined on Wednesday, to start reducing its $4.2 trillion
portfolio of Treasury bonds and mortgage-backed securities,
while raising rates for a third time this year. 
    "Really, what’s causing the markets to be somewhat skeptical
of the Fed’s hiking path is that inflation has been trending
downwards," said Praveen Korapaty, global head of rates at
Credit Suisse in New York.
    "There is some weakness in other data as well, but from my
perspective the critical thing is the trajectory of inflation."
    Korapaty said, however, that he expects inflation to recover
and that Credit Suisse expects the Fed to start paring its
balance sheet in September and increase rates again in December.
    Yields on Treasuries maturing between two and 30 years
posted weekly declines after rising the previous week, with
benchmark 10-year yields falling about four basis points for the
  Friday, June 16 at 1519 EDT (1919 GMT):
 US T BONDS SEP7               155-22/32    0-7/32    
 10YR TNotes SEP7              126-196/256  0-32/256  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.9975       1.0138    -0.005
 Six-month bills               1.1025       1.1239    -0.003
 Two-year note                 99-222/256   1.3192    -0.036
 Three-year note               100-18/256   1.4759    -0.021
 Five-year note                100-6/256    1.745     -0.017
 Seven-year note               100-44/256   1.9733    -0.011
 10-year note                  101-244/256  2.1549    -0.007
 30-year bond                  104-120/256  2.7789    -0.006
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        21.00         2.25    
 U.S. 3-year dollar swap        16.50         0.25    
 U.S. 5-year dollar swap         7.00        -0.50    
 U.S. 10-year dollar swap       -3.75        -1.00    
 U.S. 30-year dollar swap      -38.25        -1.25    
 (Reporting by Sam Forgione; Editing by Steve Orlofsky and James

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