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TREASURIES-Yields drop after supply passes, despite higher inflation

 (Updates prices)
    By Karen Brettell
    NEW YORK, Sept 11 (Reuters) - Bond yields fell on Friday
after the U.S. Treasury on Thursday completed $108 billion in
supply this week, and as investors remained doubtful that
inflation will increase much even as consumer prices rose more
than expected in August.
    The supply has weighed on the market this week, with the
Treasury selling a record amount of three-year notes as well as
the largest reopenings of 10-year notes and 30-year bonds in
history.
    Bond yields also fell after data showed an increase in
consumer prices last month.
    The Labor Department said its consumer price index rose 0.4%
in August, marking its third consecutive monthly increase.

    "You have to take (the data) with a grain of salt, because
there's a lot of dislocation that's going on because of the
virus and the lockdown," said Lou Brien, a market strategist at
DRW Trading in Chicago.
    U.S. 10-year yields reflect pessimism that the Federal
Reserve will be able to lift inflation to its target, despite
fiscal stimulus and ongoing quantitative easing, Brien said.
    The yields are "the dog that didn't bark," he said. "The
last three consumer price index numbers were stronger than
expected, and I think that it's interesting that in spite of
that, the 10-year is still sitting right around 0.67%."
    The 10-year note yields fell two basis points on
the day to 0.669%.
    The next major focus will be next week’s Fed policy meeting,
where the U.S. central bank will update its economic
projections. Investors will also be watching for any new details
on its new framework that will include allowing inflation to run
higher than previously before raising interest rates.

    
      September 11 Friday 3:06PM New York / 1906 GMT
                               Price                  
 US T BONDS DEC0               176-19/32    0-11/32   
 10YR TNotes DEC0              139-152/256  0-40/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.11         0.1116    -0.002
 Six-month bills               0.12         0.1217    0.000
 Two-year note                 99-254/256   0.129     -0.012
 Three-year note               99-234/256   0.1537    -0.010
 Five-year note                99-250/256   0.2547    -0.011
 Seven-year note               100-88/256   0.4498    -0.015
 10-year note                  99-148/256   0.669     -0.015
 20-year bond                  98-164/256   1.2019    -0.023
 30-year bond                  98-252/256   1.4168    -0.016
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         8.00         0.00    
 spread                                               
 U.S. 3-year dollar swap         6.50         0.00    
 spread                                               
 U.S. 5-year dollar swap         6.00         0.25    
 spread                                               
 U.S. 10-year dollar swap        0.50         0.00    
 spread                                               
 U.S. 30-year dollar swap      -36.75         0.50    
 spread (Editing by Chizu Nomiyama)
  
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