February 14, 2018 / 7:24 PM / 6 months ago

TREASURIES-Yields advance after rising U.S. inflation

 (Adds comment; updates prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Feb 14 (Reuters) - U.S. Treasury yields on most
maturities rose on Wednesday, with those on benchmark 10-year
notes hitting a four-year high, boosted by data showing consumer
prices in the world's largest economy gained more than expected
last month, with underlying inflation posting its largest
monthly increase in a year. 
    The report appeared to cement expectations of a rate hike by
the Federal Reserve in March despite U.S. retail sales posting
their largest decline in 11 months.
    Wednesday's data showed that the consumer price index
increased 0.5 percent in January, with households paying more
for gasoline and rent, compared with a 0.2 percent rise in
December.
    Excluding the volatile food and energy components, the CPI
grew 0.3 percent, the biggest increase since January 2017,
compared with 0.2 percent growth in December.
    Investors have agonized in the last two weeks over the
prospect of rising inflation after the January jobs reported
showed a 2.9 percent increase in wages. The fear was that
quicker inflation would lead to higher interest rates, raising
borrowing costs for both individuals and corporations.
    The CPI data has been offset, however, by a report
indicating that U.S. retail sales fell 0.3 percent last month,
the biggest decline in 11 months. Data for December was revised
to show sales unchanged instead of rising 0.4 percent as
previously reported.
    Fed funds futures on Wednesday priced in a more than 80
percent chance of an interest rate increase at next month's Fed
policy meeting, and a roughly 60 percent possibility of a move
in June, according to the CME's FedWatch.
    "Today's results fit the recent narrative that rates are
moving higher on inflation concerns, and risk assets, or at
least equity values have become sensitive to those higher
yields," said Marvin Loh, senior global market strategist at BNY
Mellon in Boston.
    "While CPI gains were the focus, the poor retail sales
results have added an additional complexity of at least
questioning the strength of the consumer entering 2018."
    In early afternoon trading, U.S. benchmark 10-year Treasury
note yields rose to 2.905 percent, from 2.84 percent
late on Tuesday. Earlier in the session, 10-year yields hit a
four-year peak of 2.911 percent.
    U.S. 30-year yields increased to 3.173 percent
from Tuesday's 3.128 percent.
    U.S. 2-year yields, the maturity most sensitive
to rate-hike expectations, advanced to a two-week high of 2.172
percent, compared with 2.106 percent on Tuesday. Two-year yields
were last at 2.163 percent.
    
      Wednesday, Feb. 14 1404 EST (1904 GMT):
                               Price                    
 US T BONDS MAR8               143-15/32    -1-3/32     
 10YR TNotes MAR8              120-108/256  -0-148/256  
                               Price        Current     Net
                                            Yield       Change
                                            (pct)       (bps)
 Three-month bills             1.5625       1.5905      -0.018
 Six-month bills               1.7625       1.803       0.000
 Two-year note                 99-174/256   2.1677      0.062
 Three-year note               99-154/256   2.3884      0.076
 Five-year note                98-210/256   2.6302      0.081
 Seven-year note               97-244/256   2.826       0.075
 10-year note                  98-168/256   2.9058      0.066
 30-year bond                  96-164/256   3.1745      0.046
                                                        
   DOLLAR SWAP SPREADS                                  
                               Last (bps)   Net Change  
                                            (bps)       
 U.S. 2-year dollar swap        27.00         1.75      
 spread                                                 
 U.S. 3-year dollar swap        18.75         1.25      
 spread                                                 
 U.S. 5-year dollar swap         9.50         0.50      
 spread                                                 
 U.S. 10-year dollar swap        1.50         1.00      
 spread                                                 
 U.S. 30-year dollar swap      -16.50         1.50      
 spread                                                 
 
 (Reporting by Gertrude Chavez-Dreyfuss, editing by G Crosse)
  
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