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TREASURIES-Yield curve flattens on bullish Fed, falling inflation
June 21, 2017 / 7:37 PM / 6 months ago

TREASURIES-Yield curve flattens on bullish Fed, falling inflation

 (Adds oil price drop, CPI data; Updates prices)
    * Yield curve flattest level since Dec 2007
    * Thirty-year bond yields lowest since November
    * Fed speakers in focus this week

    By Karen Brettell
    NEW YORK, June 21 (Reuters) - The U.S. Treasury yield curve
flattened to almost 10-year lows on Wednesday as investors
evaluated the impact of hawkish Federal Reserve policy on the
economy even as inflation measures are deteriorating.
    New York Fed President William Dudley and Boston Fed
President Eric Rosengren both took the view this week that
keeping interest rates low may pose risks to the economy.
    “I think the market may be pricing in a little higher odds
of another rate hike before the end of the year, and that is
helping drive some of the flattening,” said Gennadiy Goldberg,
an interest rate strategist at TD Securities in New York.
    Five-year note yields           , which are highly sensitive
to rate policy, rose to a four-week high of 1.80 percent on
Tuesday. They last traded at 1.77 percent.
    Meanwhile, thirty-year bond yields            , which are
largely driven by future expectations of growth and inflation,
dropped to 2.72 percent on Wednesday, the lowest since Nov. 9.
    The yield curve between five-year notes and 30-year bonds
               flattened to 95 basis points, the narrowest since
December 2007.
    Long bonds have been supported by inflation concerns, since
data last Wednesday showed that the so-called core Consumer
Price Index (CPI), which strips out food and energy costs,
increased 1.7 percent year-on-year in May, the smallest rise
since May 2015.             
    Oil prices fell about 3 percent to a 10-month low in heavy
trading on Wednesday, as nagging fears about a global glut fed a
selloff that was interrupted briefly by news of a
larger-than-expected drop in U.S. inventories.             
    With no major economic data due this week investors are
focused on Fed speakers.
    Federal Reserve Board Governor Jerome Powell will speak on
Thursday and Friday. St. Louis Fed President James Bullard and
Cleveland Fed President Loretta Mester will speak on Friday.

 (Editing by Meredith Mazzilli and Bernadette Baum)

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