February 14, 2018 / 2:53 PM / 2 months ago

TREASURIES-Yields rise after strong U.S. inflation data

 (Adds details, analysts comment, table, byline, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Feb 14 (Reuters) - U.S. Treasury yields rose
across the board on Wednesday, propelled by data showing
consumer prices in the world's largest economy gained more than
expected last month, with underlying inflation posting its
largest increase in a year. 
    The report appeared to cement expectations of a rate hike by
the Federal Reserve in March.
    However, the decline in Treasury prices, which move
inversely to yields, was being limited by safe-haven bids as
U.S. stocks fell in the wake of the inflation data. 
    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, data showed. 
    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.
    Fed funds futures have priced in a more than 80 percent
chance of an interest rate increase at next month's Fed policy
meeting, and more than a 60 percent possibility of a move in
June, according to the CME's FedWatch.
    Investors have agonized in the last two weeks over the
prospect of higher inflation after the January jobs reported
showed a 2.9 percent increase in wages. The fear was that strong
inflation would lead to higher interest rates, raising borrowing
costs for both individuals and corporations.
    The CPI data has been offset 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.
    "The market had recently been pricing in a faster pace of
rate increases from the Fed," said John Canavan, market
strategist at Stone & McCarthy Research Associates in New York.
    "Even though the retail sales numbers came in weaker than
expected, the broad outline for the economy is quite strong this
year. This will weigh on the front end of the yield curve," he
added.
    In morning trading, U.S. benchmark 10-year note yields rose
to 2.8675 percent, from 2.84 percent late on
Tuesday.
    U.S. 30-year yields increased to 3.137 percent,
from Tuesday's 3.128 percent.
    U.S. 2-year yields, in the maturity most
sensitive to rate hike expectations, advanced to a two-week high
of 2.159 percent, compared with 2.106 percent on Tuesday.
    
    February 14 Wednesday 9:23 AM EST / 1423 GMT
                               Price                  
 US T BONDS MAR8               144-7/32     -0-11/32  
 10YR TNotes MAR8              120-168/256  -0-88/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.58         1.6084    0.000
 Six-month bills               1.77         1.8108    0.008
 Two-year note                 99-180/256   2.1554    0.049
 Three-year note               99-172/256   2.3639    0.052
 Five-year note                98-242/256   2.603     0.054
 Seven-year note               98-40/256    2.7933    0.042
 10-year note                  98-248/256   2.8694    0.029
 30-year bond                  97-72/256    3.1406    0.013
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        26.00         0.75    
 spread                                               
 U.S. 3-year dollar swap        18.50         1.00    
 spread                                               
 U.S. 5-year dollar swap         9.25         0.25    
 spread                                               
 U.S. 10-year dollar swap        0.75         0.25    
 spread                                               
 U.S. 30-year dollar swap      -17.50         0.50    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Richard Leong; Editing by Jeffrey Benkoe)
  
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