March 12, 2019 / 2:12 PM / 11 days ago

TREASURIES-Yields slip after tame U.S. inflation data, Brexit worries

    * U.S. core, year-on-year CPI shows weak inflation
    * Brexit hangs in the balance, weighs on U.S. yields
    * Focus on U.S. 10-year note auction

 (Adds comment, Treasuries table, updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 12 (Reuters) - U.S. Treasury yields drifted
lower on Tuesday after data showed tame inflation in the world's
largest economy in February, backing expectations the Federal
Reserve will hold interest rates steady this year after hiking
rates four times in 2018.
    U.S. long-dated yields fell in six of the last seven
sessions, while those on two-year notes, the security most
sensitive to interest rate moves, dropped in five of the last
seven.
    Concerns about Britain's exit from the European Union also
weighed on U.S. yields, boosting Treasury prices, ahead of a
parliamentary vote on British Prime Minister Theresa May's
revised deal. Analysts were concerned May's deal
could be defeated by lawmakers.
    In the United States, the Labor Department said on Tuesday
its consumer price index grew 0.2 percent in February due to
gains in the costs of food, gasoline and rents. The index was
unchanged for three straight months.
    Excluding the volatile food and energy components, the CPI
edged up just 0.1 percent, the smallest increase since August
2018. In the 12 months through February, the CPI rose 1.5
percent, the smallest gain since September 2016.
    "All in all, yet another reason for the Fed to remain on
hold as inflationary pressures fail to manifest," said Jon Hill,
interest rates strategist, at BMO Capital Markets in New York.
    In early trading, U.S. 10-year note yields fell to 2.633
percent, down from 2.641 percent late on Monday.
    U.S. 30-year bond yields were down at 3.027 percent
, from 3.032 percent on Monday.
    On the short end of the curve, U.S. 2-year yields slipped to
2.464 percent, compared with Monday's 2.477 percent. 
    Market participants were also bracing for the auction of $24
billion in U.S. 10-year notes.
    Investors typically sell the note going into an auction in
order to buy them back at lower prices in a practice called
"concession." But given the overall benign U.S. inflation data
and worries about Brexit, investors bought Treasuries instead.
    BMO's Hill said, however, that the 10-year note has already
seen a slight concession built into pricing after a weak U.S.
non-farm payrolls report last Friday.
    He said the "Brexit vote occurring shortly after the auction
close remains a confounding factor."
     
March 12 Tuesday 9:52 AM New York / 1352 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.4025       2.4509    -0.006
 Six-month bills               2.46         2.5257    -0.004
 Two-year note                 100-16/256   2.467     -0.010
 Three-year note               99-214/256   2.4321    -0.012
 Five-year note                99-190/256   2.4303    -0.010
 Seven-year note               99-224/256   2.5196    -0.012
 10-year note                  99-240/256   2.6321    -0.009
 30-year bond                  99-124/256   3.0262    -0.006
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        11.50        -0.75    
 spread                                               
 U.S. 3-year dollar swap         8.75        -0.25    
 spread                                               
 U.S. 5-year dollar swap         6.75        -0.50    
 spread                                               
 U.S. 10-year dollar swap        1.25        -0.50    
 spread                                               
 U.S. 30-year dollar swap      -20.50        -0.75    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Bernadette
Baum)
  
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