January 11, 2019 / 2:46 PM / in 5 months

TREASURIES-Prices gain on weak stocks, after consumer price decline

    * Weak stock markets boosts bond buying
    * End of Treasury supply removes weight from market
    * Consumer prices fell in December

    By Karen Brettell
    NEW YORK, Jan 11 (Reuters) - U.S. Treasury prices gained on
Friday as stocks opened weaker and after data showed a decline
in consumer prices during December, while bonds were also helped
by the weight of new Treasury supply this week being lifted from
the market.
   Stocks opened lower on Friday after rallying for the past
five sessions on hopes of a resolution in the U.S.-China trade
dispute and assurances from the Federal Reserve that it would be
patient on interest rate hikes.     
    “Stocks are a little weaker. They really have dictated the
direction of Treasury trading for a while now,” said Thomas
Simons, a money market economist at Jefferies in New York.
    The Labor Department also said on Friday its Consumer Price
Index dipped 0.1 percent last month amid a plunge in gasoline,
though underlying inflation pressures remained firm as rental
housing and healthcare costs rose steadily.             
    Bonds were further aided by the completion of $78 billion
this week in new coupon-bearing Treasury supply, which has
weighed on longer-dated bonds.
    Benchmark 10-year notes             gained 9/32 in price to
yield 2.699 percent, down from 2.731 percent late Thursday.
    Yields have risen from one-year lows reached a week ago on
improving risk appetite since Federal Reserve Chairman Jerome
Powell said on Friday that he was aware of the risks of an
economic slowdown and that the U.S. central bank will be patient
and flexible in policy decisions this year.
     Powell on Thursday stressed again that the U.S. central
bank can be patient in approving any further rate increases,
saying that "especially with inflation low and under control, we
have the ability to be patient and watch patiently and
    The yield curve also steepened after minutes from the Fed’s
December meeting, released on Wednesday, showed that a range of
policymakers said they could be patient about future interest
rate increases and a few did not support the central bank's rate
increase that month.             
    Trade talks between the United States and China and the
ongoing partial U.S. government shutdown remain headwinds for
    A trade deal with China could be significant, if reached. 
“If we get some indication of progress on that front that could
really open things up, it could have a pretty dramatic impact on
the inflation environment and change expectations for the Fed
too,” Simons said.

 (Editing by Susan Thomas)
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