August 10, 2018 / 4:23 PM / 3 months ago

TREASURIES-U.S. bond market rallies on jitters about Turkey

    * Ten-year yield on track for biggest daily drop since late
May
    * U.S. core CPI comes in stronger-than-forecast in July
    * Trump authorizes higher tariffs on Turkish steel, aluminum
    * Overall solid August refunding underpins Treasuries demand

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, Aug 10 (Reuters) - U.S. Treasury yields fell to
near three-week lows on Friday as investors scooped up low-risk
government debt on anxiety about Turkey's financial problems
spreading to other emerging economies and lenders exposed to the
sector.
    The benchmark 10-year yield is on track for its biggest
one-day drop since late May as U.S. President Donald Trump
escalated tension with Turkey, a NATO ally, by slapping higher
tariffs on Turkish steel and aluminum imports.
    "Our relations with Turkey are not good at this time," Trump
said on Twitter. 
    In response, Turkey's finance minister Berat Albayrak rolled
out the government's new economic plan on Friday, promising
central bank independence and tighter budget discipline, but
giving few details to reassure investors and stem a currency
crisis.
    Rattled traders dumped more lira on Friday for its
biggest single-day loss since Turkey adopted a floating-currency
regime in 2001.
    "Clearly the currency took a beating. That had to raise
eyebrows," said Jerry Paul, senior vice president of fixed
income at ICON Advisers in Denver. "On top of that, you had
Trump piling on with the tariff stuff. People say, 'I just want
to be in a safe asset.'"
    The yield on benchmark 10-year Treasury notes
touched 2.870 percent, its lowest in almost three weeks. At
12:02 a.m. Eastern time (1602 GMT), it was down over 5 basis
points at 2.880 percent, putting it on track for its steepest
weekly fall in 11 weeks.
    Wall Street and other major stock markets fell on worries
about Turkey and its woes hurting the global economy.

    Friday's safe-haven bids for Treasuries added to earlier
buying following perceived solid August government debt
refunding where the government raised nearly $40 billion of
fresh cash for spending and debt servicing.
    "The latest auction cycle went pretty well. Demand seems to
be there. It's comforting for the market," said Larry Milstein,
head of government and agency trading at R.W. Pressprich & Co.
in New York. 
    Friday's drop in U.S. bond yields was limited after data
showed underlying domestic inflation grew a tad stronger than
forecast in July, reducing bets price growth would weaken in
coming months, analysts said.
    The core rate of the consumer price index (CPI), which
excludes volatile food and energy prices, increased 0.2 percent
in July, lifting its annual gain to 2.4 percent for its biggest
gain since September 2008, the Labor Department said on
Friday.
August 10 Friday 12:03PM New York / 1603 GMT
                               Price                  
 US T BONDS SEP8               144-5/32     28/32     
 10YR TNotes SEP8              120-48/256   15/32     
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.005        2.0427    -0.008
 Six-month bills               2.17         2.224     -0.011
 Two-year note                 100-4/256    2.6165    -0.037
 Three-year note               100-44/256   2.69      -0.052
 Five-year note                99-254/256   2.7516    -0.061
 Seven-year note               100-76/256   2.8276    -0.062
 10-year note                  99-244/256   2.8804    -0.055
 30-year bond                  99-64/256    3.0383    -0.047
         YIELD CURVE           Last (bps)   Net       
                                            Change    
                                            (bps)     
 10-year vs 2-year yield       26.30        -1.45     
 30-year vs 5-year yield       28.50        2.20      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        19.00        -0.25    
 spread                                               
 U.S. 3-year dollar swap        16.75         0.50    
 spread                                               
 U.S. 5-year dollar swap        13.00         0.75    
 spread                                               
 U.S. 10-year dollar swap        5.50         0.00    
 spread                                               
 U.S. 30-year dollar swap       -7.25        -0.50    
 spread                                               
 
    

    
 (Reporting by Richard Leong
Editing by Chris Reese)
  
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