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TREASURIES-Yields dip after soft U.S. March inflation reading
March 17, 2017 / 3:33 PM / 9 months ago

TREASURIES-Yields dip after soft U.S. March inflation reading

    * 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 (Reuters) - 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
late Thursday. 
    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)

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