TREASURIES-U.S. yields fall after inflation shows signs of cooling

By Rodrigo Campos

NEW YORK, Sept. 14 (Reuters) - U.S. government bond yields slipped on Tuesday after data showed consumer prices increased at their slowest pace in six months in August, suggesting that inflation had probably peaked.

The core measure of U.S. consumer prices edged up 0.1% last month, the smallest gain since February. The measure, which excludes the volatile food and energy components, increased 4.0% on a year-on-year basis after advancing 4.3% in July.

The data could be volatile in coming months as shortages of basic materials and parts have created bottlenecks, and price increases, across various supply chains.

But the August slowdown gives the Federal Reserve breathing room as it prepares to reduce its massive bond holdings and decide how soon to begin lifting rates from near zero.

"The big question for the Fed is going to be whether this further moderation pushes inflation lower in the next few months, and whether inflation significantly cools. And that could be interesting for the rate hike component of all of this, which they have been very careful to divorce from tapering," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York.

The yield on 10-year Treasury notes US10YT=RR was down 1.8 basis points to 1.306%.

The yield on the 30-year Treasury bond US30YT=RR was down 1.3 basis points to 1.892%.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 0.8 basis points at 0.207%.

September 14 Tuesday 9:30AM New York / 1330 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.045

0.0456

0.000

Six-month bills US6MT=RR

0.05

0.0507

0.000

Two-year note US2YT=RR

99-215/256

0.207

-0.008

Three-year note US3YT=RR

99-216/256

0.4275

-0.014

Five-year note US5YT=RR

99-214/256

0.7838

-0.021

Seven-year note US7YT=RR

100-68/256

1.0853

-0.020

10-year note US10YT=RR

99-124/256

1.3056

-0.018

20-year bond US20YT=RR

98-216/256

1.8194

-0.015

30-year bond US30YT=RR

102-120/256

1.8915

-0.013

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

10.00

0.25

U.S. 3-year dollar swap spread

11.25

0.50

U.S. 5-year dollar swap spread

9.50

0.00

U.S. 10-year dollar swap spread

2.25

0.00

U.S. 30-year dollar swap spread

-25.50

0.50

(Reporting by Rodrigo Campos and Karen Brettell; Editing by Bernadette Baum)

((rodrigo.campos@reuters.com; @RodrigoCampos;))

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