Yields fall to one-week low as U.S. stocks sell off again

* U.S. CPI data weaker than expected
* Stocks fall, tame CPI not stopping Fed from hiking
-analyst
* Markets await U.S. 30-year auction

(Adds comment, 30-year auction results; updates prices, table)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 11 (Reuters) - U.S. Treasury yields fell to
one-week lows on Thursday, sliding for a second straight
session, as Wall Street shares dropped a day after posting steep
losses on worries about prospects for rising interest rates.
A weaker-than-expected rise in U.S. inflation for September
also added to Treasuries bullish tone and may have partly
tempered expectations of more aggressive Federal Reserve
interest rate hikes.
Investors kept a close eye on U.S. stocks after the previous
day's fall. By late afternoon, Wall Street shares were down in
choppy trading.
"Bonds are looking closely at what's going on in stocks and
therefore all news is bad news," said Stan Shipley, market
strategist, at Evercore ISI in New York.
"Investors are saying that if stocks are this weak, there
must be a risk out there that I don't see. Bonds and stocks
used to trade opposite each other, now they're trading with each
other," he added.
Bond strategists though said the stocks fall should not stop
the Fed from hiking.
Thursday's softer-than-forecast U.S. consumer prices data
weighed on yields as well, but analysts said this should also
not deter the Fed from its rate path.
The U.S. Consumer Price Index rose 0.1 percent last month
after rising 0.2 percent in August. Excluding the volatile food
and energy components, the CPI edged up 0.1 percent for the
second straight month, after gaining 0.2 percent in May, June
and July.
George Goncalves, managing director and head of fixed income
strategy at Nomura in New York, said the tame inflation data
could slow the momentum in yields, but the Fed will continue
lifting rates.
"It does make people think that it (inflation) is not
imminent of a danger and therefore the Fed will maintain its
gradual pace of every quarter," he said. "It takes away some of
the concern that inflation is accelerating, but not enough to
turn us back into rally mode."
The U.S. 30-year auction, meanwhile, saw solid demand, with
the bond picking up a yield of 3.344 percent, the highest at an
auction for this maturity since July 2014. The ratio of bids to
the amount of supply offered was 2.42, the strongest since
January, compared with 2.34 at the previous 30-year sale in
September.
In late afternoon trading, U.S. 10-year note yields were at
3.142 percent, down from 3.225 percent late on
Wednesday. Earlier in the global session, 10-year yields hit a
one-week low of 3.124 percent.
U.S. 30-year bond yields fell to 3.316 percent,
versus Wednesday's 3.401 percent. The yield earlier dropped to
3.229 percent, the lowest since Oct. 3.
On the short end of the curve, U.S. two-year yields were at
2.852 percent, down from 2.881 percent on Wednesday.

October 11 Thursday 3:36PM New York / 1936 GMT



Price Current Net
Yield % Change
(bps)
Three-month bills 2.2225 2.266 -0.008
Six-month bills 2.38 2.4423 -0.006
Two-year note 99-206/256 2.8525 -0.029
Three-year note 99-208/256 2.9408 -0.046
Five-year note 99-110/256 2.9993 -0.062
Seven-year note 99-120/256 3.0852 -0.077
10-year note 97-196/256 3.1404 -0.085
30-year bond 94-28/256 3.3121 -0.089

DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 18.75 0.00
spread
U.S. 3-year dollar swap 16.25 -0.50
spread
U.S. 5-year dollar swap 12.75 0.50
spread
U.S. 10-year dollar swap 4.50 0.25
spread
U.S. 30-year dollar swap -10.25 1.00
spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu
Nomiyama and Susan Thomas)


First Published: 2018-10-11 18:19:27
Updated 2018-10-11 21:46:33


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