Yields dip as inflation stays benign, stocks weaken

Credit: REUTERS/DADO RUVIC

By Karen Brettell

NEW YORK, July 14 (Reuters) - U.S. Treasury yields fell on Tuesday after data showed that core inflation remained well under the Fed’s target and as stocks opened lower.

U.S. consumer prices rebounded in June after three straight monthly declines as businesses reopened, but the underlying trend suggested inflation would remain muted and allow the Federal Reserve to keep injecting money into the ailing economy.

Core inflation rose 0.2% on the month but remained at 1.2% on the year, below the Fed’s target of 2%.

“I think broadly speaking the market’s really focused on the core year-on-year,” said Subadra Rajappa, head of U.S. interest rate strategy at Societe Generale in New York. “Markets (are) coming to the realization that inflation is perhaps going to be well below the 2% target for the foreseeable future.”

Weaker stocks also added a bid for safe haven bonds. Wall Street opened lower following a mixed bag of quarterly earnings from U.S. lenders and simmering tensions between Washington and Beijing, while new coronavirus restrictions in California hit tech stocks for a second straight day. .N

Benchmark 10-year yields US10YT=RR fell three basis points to 0.609%. The yield curve between two-year and 10-year notes US2US10=TWEB flattened one basis point to 45 basis points.

Yields on 10-year Treasury Inflation-Protected Securities (TIPS) fell two basis points to minus 0.81%.

These yields, which are known as “real yields” as they adjust for impact of expected inflation, have dropped from minus 0.40% at the beginning of June on rising inflation expectations.

The move also reflects concerns about growth going forward, said Rajappa.

“You’re looking at negative 80 basis points in real yields. It doesn’t really send a very positive sign on real growth over the longer run,” she said.

Concerns about growth also come as the U.S. government racks up a record deficit as it spends on coronavirus relief programs and sees a drop in individual and corporate tax receipts.

Data on Monday showed that the U.S. federal budget deficit in June surged to $864 billion from single digits a year earlier. The June deficit brought the year-to-date fiscal deficit to $2.7 trillion, far eclipsing the previous full-year record of $1.4 trillion in 2009.

July 14 Tuesday 9:47AM New York / 1347 GMT

Price

US T BONDS SEP0 UScv1

180-16/32

0-28/32

10YR TNotes SEP0 TYcv1

139-108/256

0-52/256

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.1425

0.1445

0.000

Six-month bills US6MT=RR

0.15

0.1522

-0.003

Two-year note US2YT=RR

99-243/256

0.151

-0.008

Three-year note US3YT=RR

99-216/256

0.1772

-0.011

Five-year note US5YT=RR

99-218/256

0.2802

-0.018

Seven-year note US7YT=RR

100-68/256

0.4612

-0.023

10-year note US10YT=RR

100-40/256

0.6086

-0.031

20-year bond US20YT=RR

100-252/256

1.0698

-0.041

30-year bond US30YT=RR

99

1.2905

-0.046

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

6.75

0.50

U.S. 3-year dollar swap spread

4.75

0.25

U.S. 5-year dollar swap spread

3.00

-0.25

U.S. 10-year dollar swap spread

-2.50

-0.50

U.S. 30-year dollar swap spread

-47.25

-0.75

((karen.brettell@thomsonreuters.com))

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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