US Markets

TREASURIES-U.S. yields slide after strong auction, inflation data

Credit: REUTERS/DADO RUVIC

U.S. Treasury yields fell on Wednesday in choppy trading, after a strong 10-year note auction and data showing a slight moderation in consumer prices for the month of July in the world's largest economy.

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 11 (Reuters) - U.S. Treasury yields fell on Wednesday in choppy trading, after a strong 10-year note auction and data showing a slight moderation in consumer prices for the month of July in the world's largest economy.

U.S. 10-year yields dropped to session lows after the auction, falling from four-week peaks earlier in the session.

The 10-year note picked up a high yield of 1.34%, much lower than the expected or when-issued rate of 1.375% at the bid deadline, suggesting investors were willing to buy the note at a much lower yield.

The bid-to-cover ratio, a gauge of demand, was 2.65, compared to what analysts said was an average of 2.47.

The robust 10-year note followed an equally solid U.S. 3-year note sale that was boosted by the recent decline in bond prices and persistent safe-haven demand amid the surge in global virus cases.

The yield curve, a gauge of economic sentiment and rate move expectations, flattened to 109.30 basis points, as measured by the spread between two-year and 10-year yields US2US10=TWEB. That curve had steepened in the four previous sessions.

U.S. yields were a lot higher before the inflation data, bolstered by comments from two Federal Reserve officials on Tuesday, suggesting that the central bank could soon reduce or taper its asset purchases. Tapering tends to push Treasury debt prices lower and yields higher because it means the Fed is buying less of those bonds.

U.S. consumer price increases slowed in July but inflation overall remained historically high. The consumer price index increased 0.5% last month after climbing 0.9% in June. Excluding the volatile food and energy components, the CPI rose 0.3% after increasing 0.9% in June.

"A well-behaved CPI print arrived in timely fashion this morning to generate a buying burst not seen since July 30," said Jim Vogel, senior rates strategist, at FHN Financial, in a research note.

"Moderate inflation for one month didn't change the outlook so much as it allowed flows to balance at an old support level that eroded in light selling yesterday," he added.

Gennadiy Goldberg, senior rates strategist, at TD Securities in New York, noted that the moderate rise in consumer prices should give the Fed confidence to let inflation run a little hotter than usual in the short term.

In early afternoon trading, the yield on 10-year Treasury notes US10YT=RR was down 2.2 basis points at 1.320%. Earlier in the session, the 10-year yield hit a four-week high of 1.378%

The yield on the 30-year Treasury bond US30YT=RR was up 0.4 basis points at 1.988%.

The two-year US2YT=RR U.S. Treasury yield, was down 2.1 basis points at 0.217%.

The 10-year TIPS breakeven rate US10YTIP=RR, the inflation average expected per year for the next decade, was at 2.4%, slightly up from 2.391% on Tuesday.

Also on Wednesday, Dallas Fed President Robert Kaplan, who is currently not a voting member of the Fed policy committee, said the U.S. central bank should announce its timeline on starting the reduction of its massive bond holdings next month, and start tapering in October.

August 11 Wednesday 1:40PM New York / 1740 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.05

0.0507

-0.005

Six-month bills US6MT=RR

0.0525

0.0532

-0.003

Two-year note US2YT=RR

99-210/256

0.2166

-0.021

Three-year note US3YT=RR

99-204/256

0.4433

-0.032

Five-year note US5YT=RR

99-42/256

0.797

-0.026

Seven-year note US7YT=RR

99-84/256

1.1004

-0.023

10-year note US10YT=RR

102-200/256

1.3202

-0.022

20-year bond US20YT=RR

105-228/256

1.8912

-0.002

30-year bond US30YT=RR

108-168/256

1.9882

0.004

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

8.50

0.00

U.S. 3-year dollar swap spread

9.25

-2.00

U.S. 5-year dollar swap spread

8.25

-0.25

U.S. 10-year dollar swap spread

0.75

-0.25

U.S. 30-year dollar swap spread

-29.25

0.00

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Karen Brettell in New York; Editing by David Evans, Elaine Hardcastle)

((gertrude.chavez@thomsonreuters.com; 646-301-4124; Reuters Messaging: gertrude.chavez.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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