September 12, 2019 / 2:12 PM / a month ago

TREASURIES-U.S. yields decline, tracking Europe, after ECB eases policy

    * ECB cuts rates, restarts quantitative easing
    * U.S. core CPI rises, but Fed still expected to ease
    * Mnuchin: govt seriously considering 50-year bond issue
next year

 (Adds new comment, U.S. inflation data, Mnuchin's comments on
ultra-long bonds, Treasury data table, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Sept 12 (Reuters) - U.S. Treasury yields fell
across the board on Thursday, in line with the European bond
market, after the European Central Bank cut interest rates to a
record low and said it would restart asset purchases to boost
its slumping economy.
    U.S. 2-year and 10-year yields pulled back from five-week
highs hit early in the global session, while 30-year yields slid
from four-week peaks. 
    In Europe, Germany's 10-year bond yield tumbled to -0.64%
 while 30-year debt fell almost 20 basis points at
one point. Italian 10-year bond yields hit a record
low of 0.782%.
    The ECB on Thursday cut its deposit rate to an all-time low
of -0.5% from -0.4% and will restart bond purchases of 20
billion euros a month from November, it said in a statement.
    "They delivered pretty much the consensus expectation," said
Subadra Rajappa, head of U.S. rates strategy, at TD Securities
in New York. 
    "There was debate whether they would introduce quantitative
easing, but they pretty much delivered a dovish message. That's
what is kind of leading the rally in bonds here."
    The ECB action overshadowed a stronger-than-expected U.S.
core inflation number, which posted the largest annual gain in a
year. The consumer price index excluding the volatile food and
energy components gained 0.3% for a third straight month.

    The inflation report, however, should not prevent the
Federal Reserve from raising interest rates later this month. 
    But Andrew Hunter, senior U.S. economist, at Capital
Economics in London said the inflation data provides "further
reason to believe market expectations of significant further
easing will ultimately be disappointed."
    In mid-morning trading, U.S. benchmark 10-year note yields
 fell to 1.721% from 1.733% late on Wednesday. 
    Yields on 30-year bonds were also lower at 2.195%
 from 2.208% on Wednesday. 
    U.S. two-year yields were little changed at 1.672%
    U.S. Treasury Secretary Steven Mnuchin on Wednesday
reiterated that the government is seriously considering issuing
a 50-year bond next year.
    Andre Severino, global head of fixed Income at Nikko Asset
Management in London, said he is in favor of ultra-long bonds.
    "If there's ever a market to launch those, this is the time.
  From the government's perspective, it makes a lot of sense,"
said Severino.
    "If there's infrastructure projects that need to be done, I
think these are very attractive rates to finance those projects.
And given the debt profile of the U.S., I think there would be
tremendous demand for ultra-long bonds."
    Later on Thursday, the Treasury will sell $16.0 billion in
30-year bonds in an auction.
      September 12 Thursday 9:51AM New York / 1351 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             1.915        1.9563    -0.006
 Six-month bills               1.83         1.8778    -0.005
 Two-year note                 99-172/256   1.6704    0.000
 Three-year note               99-176/256   1.6072    -0.003
 Five-year note                98-104/256   1.5851    -0.007
 Seven-year note               98-36/256    1.6588    -0.014
 10-year note                  99-40/256    1.7178    -0.015
 30-year bond                  101-72/256   2.1914    -0.017
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        -1.50         0.00    
 U.S. 3-year dollar swap        -3.75         0.50    
 U.S. 5-year dollar swap        -7.00         0.00    
 U.S. 10-year dollar swap      -12.00         0.00    
 U.S. 30-year dollar swap      -42.50        -0.25    
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Raissa Kasolowsky and Chizu Nomiyama)
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