August 10, 2017 / 3:05 PM / a year ago

TREASURIES-Yields slump on North Korea tensions, soft U.S. data

* North Korea outlines plan of missile attack on Guam

* Soft U.S. data further cuts Dec rate hike chances

* Focus on U.S. 30-year bond auction (Adds comment, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 10 (Reuters) - U.S. Treasury long-dated yields dropped to six-week lows on Thursday, pressured by continued tensions between the United States and North Korea as well as weak data that further reduced expectations of an interest rate hike in December.

Over the last two weeks, U.S. 10-year note and 30-year bond yields have fallen between 7-10 basis points as the North Korean issue has escalated.

North Korea on Thursday scoffed at warnings by U.S. President Donald Trump that it would face “fire and fury” if it threatened the United States and outlined detailed plans for a missile strike near the U.S. Pacific territory of Guam.

“This rally is still partly due to North Korea,” said John Bredemus, vice president and head of capital markets at Allianz Investment Management in Minneapolis. “There is still a flight- to-quality move as people don’t know what’s going to happen.”

Thursday’s weak U.S. data, which showed the biggest drop in producer prices in 11 months and an unexpected rise in weekly jobless claims, did not help yields, further delaying the next rate hikes.

The U.S. producer price index for final demand slipped 0.1 percent last month, reversing June’s 0.1 percent gain. July’s drop was the largest since August 2016.

U.S. jobless claims were weaker than expected, rising 3,000 to a seasonally adjusted 244,000 for the week ended Aug. 5. Data for the prior week was revised to show 1,000 more applications received than previously reported.

After the data, rates futures priced in just a 42 percent chance of a rate hike by the Federal Reserve in December, from a nearly 60 percent chance a month ago.

In late morning trading, U.S. 10-year yields slipped to 2.216 percent, from 2.242 percent late on Wednesday. Earlier in the session, 10-year yields hit a six-week trough of 2.21 percent.

U.S. 30-year bond yields also fell, down to 2.801 percent , from Wednesday’s 2.818 percent. Yields also fell to six-week lows of 2.792 percent.

“I do favor buying dips as the geopolitical landscape continues to worsen and the fall will bring more volatility to equity markets in general,” said Tom di Galoma, managing director at Seaport Global Holdings in New York.

Investors were looking to the $15 billion, U.S. 30-year bond auction later on Thursday, which could see subdued demand given the fact that the tenor has become more expensive with the North-Korea fueled rally this week. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama and Dan Grebler)

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