November 14, 2018 / 3:48 PM / 6 months ago

TREASURIES-U.S. yields rise on Wall street gains, Brexit optimism

    * U.S. headline CPI rises in Oct; core CPI in line with
    * Wall Street shares rise, boosting yields
    * Brexit deal gains positive momentum

 (Adds comment, details, table, byline)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 14 (Reuters) - U.S. benchmark 10-year Treasury
yields rallied from two-week lows on Wednesday, bolstered by
gains on Wall Street and continued optimism about Britain's exit
from the European Union.
    Yields on other maturities also rose, with a little help
from in-line U.S. core inflation data for October. That should
keep the Federal Reserve firmly on track to raise interest rates
next month and a few more times in 2019.
    On Wednesday, U.S. stocks traded higher, further moving away
from Monday's steep losses, as a rebound in oil prices lifted
energy stocks.
    "To me, it's equities turning higher as well as positive
momentum on Brexit that are giving some room for Treasury yields
to rise," said Subadra Rajappa, head of U.S. rates strategy at
Societe Generale in New York.
    A draft Bexit deal was struck on Tuesday after months of
negotiations with the EU, but British Prime Minister Theresa May
must get the agreement approved by parliament before leaving the
bloc on March 29, 2019.
    In morning trading, benchmark 10-year note yields rose to 
3.154 percent, from 3.145 percent late on Tuesday.
Ten-year yields earlier fell to a two-week low of 3.132 percent.
    U.S. 30-year yields climbed to 3.385 percent
compared with Tuesday's 3.367 percent.
    On the short end of the curve, U.S. two-year yields were at
2.895 percent, unchanged from Tuesday.
    Yields also got a modest boost from data showing the U.S.
consumer price index increased by 0.3 percent last month after
edging up 0.1 percent in September. October's rise was the most
in nine months amid gains in the cost of gasoline and rents.
    Excluding the volatile food and energy components, CPI
climbed 0.2 percent. The so-called core CPI had gained 0.1
percent for two straight months.
    Andrew Hunter, U.S. economist at Capital Economics in
London, said the rebound in headline CPI was mostly driven by a
rise in gasoline prices, which will be more than reversed over
the next couple of months with the decline in oil prices.
    "The rest of the report supports our view that underlying
inflation is unlikely to rise much further from here," he added.
    That said, Hunter noted that the Fed will still likely
continue hiking interest rates once a quarter in the near term,
with the next move coming in December. 
    "But with little sign that a more marked acceleration in
inflation lies ahead, Fed officials won't hesitate to back away
from further tightening if economic growth slows," he said.  
      November 14 Wednesday 10:28AM New York / 1528 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             2.335        2.3815    0.000
 Six-month bills               2.465        2.5308    0.000
 Two-year note                 99-246/256   2.8953    0.000
 Three-year note               99-200/256   2.9517    0.000
 Five-year note                99-124/256   2.9875    0.000
 Seven-year note               99-140/256   3.0727    0.005
 10-year note                  99-192/256   3.1543    0.009
 30-year bond                  99-204/256   3.3858    0.019
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        18.75         0.00    
 U.S. 3-year dollar swap        16.50         0.25    
 U.S. 5-year dollar swap        13.75         0.50    
 U.S. 10-year dollar swap        6.00         0.25    
 U.S. 30-year dollar swap      -10.50        -0.25    
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jeffrey
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