June 18, 2019 / 3:00 PM / 4 months ago

TREASURIES-U.S. yields tumble after Draghi comments on possible easing

    * Draghi says ECB to launch more stimulus if inflation stays
low
    * European bond yields fall after Draghi's comments
    * U.S. housing starts decline  

 (Adds comment, byline, table, details)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, June 18 (Reuters) - U.S. Treasury yields sank on
Tuesday, in line with Europe, weighed down by comments from
European Central Bank President  Mario Draghi hinting at more
stimulus if the region's inflation fails to pick up toward its
target. 
    U.S. benchmark 10-year yields fell to their lowest since
early September 2017, while 30-year yields dropped to their
weakest level since late October 2016.
    "(We) will use all the flexibility within our mandate to
fulfill our mandate - and we will do so again to answer any
challenges to price stability in the future," Draghi said on
Tuesday. "Monetary policy remains committed to its objective and
does not resign itself to too-low inflation."
    German bond yields hit record lows deep in
negative territory and French 10-year yields turned
negative for the first time after Draghi's comments.
    "Draghi was extremely dovish and this had a big impact on
Treasuries as we anticipate the Federal Reserve," said Ellis
Phifer, market strategist at Raymond James in Memphis,
Tennessee. 
    He doesn't believe the Fed will cut rates this month, or be
as dovish as Draghi.
    "Draghi gave a view that was much more imminent. I think the
Fed is not going to be as transparent," Phifer said. "I think
there are still signs that the United States is stronger than
Europe, but obviously Europe becomes an issue for global growth
if it continues to decline."
    The Fed starts its two-day meeting on Tuesday. Analysts
expect the Fed to hold interest rates steady at the meeting, but
think it could alter its interest rate forecasts and change its
language to set the stage for possible easing this year.
    In morning trading, U.S. 10-year note yields fell to 2.068%
 from 2.086% late on Monday, after earlier falling to
2.016%, the lowest since September 2017.
    Yields on U.S. 30-year bonds dropped to 2.556%,
from 2.577% on Monday. Earlier in the session, 30-year yields
dropped to a nearly 2-1/2-year trough of 2.513%.
    On the short end of the curve, U.S. 2-year yields were down
at 1.858% from Monday's 1.865%.
    U.S. Treasury prices earlier rallied in response to an
announcement by the United States on Monday that it would deploy
1,000 more troops in the Middle East, citing concerns about a
threat from Iran. On Tuesday, Iran said it would not wage war
against any nation.
    Tuesday's softer-than-expected U.S. housing data did not
help yields at all. 
    Housing starts dropped 0.9% to a seasonally adjusted annual
rate of 1.269 million units in May amid a fall in the
construction of single-family housing units, the Commerce
Department said on Tuesday.
    
      June 18 Tuesday 10:28AM New York / 1428 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.1775       2.2262    0.028
 Six-month bills               2.1375       2.1969    -0.002
 Two-year note                 100-131/256  1.8561    -0.009
 Three-year note               99-222/256   1.7958    -0.008
 Five-year note                100-202/256  1.8324    -0.015
 Seven-year note               101-52/256   1.939     -0.019
 10-year note                  102-196/256  2.0647    -0.021
 30-year bond                  106-176/256  2.5538    -0.023
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         2.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap         1.75        -0.50    
 spread                                               
 U.S. 5-year dollar swap        -1.25         0.00    
 spread                                               
 U.S. 10-year dollar swap       -6.50        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -32.50        -0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea
Ricci)
  
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