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TREASURIES-U.S. yields rise after producer prices data; focus on supply next week

    * U.S. producer prices rise more than expected
    * U.S. yield curve steepens, with 2-year/10 year spread at 149 bps
    * Looming $120 billion in Treasury supply next week
    * Investors also look to CPI next week

 (Adds new comment, bullets updates prices)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, April 9 (Reuters) - U.S. Treasury yields rose on Friday after
higher-than-expected producer prices data for March that showed inflation perked
up, in line with other upbeat reports that suggested the world's largest economy
was on a stable path to recovery from the pandemic.
    U.S. yields across the board hit session highs after the PPI numbers. By
afternoon trading yields had come off their highs, as has been the case all
week.
    "I think the market is willing to give a little benefit of the doubt to the
Federal Reserve, which said that the first wave of inflation would be
transitory," said Lou Brien, market strategist at DRW Trading in Chicago. 
    "There seems to be an uneasy tension, but we do seem to have fallen into a
level on yields where we're willing to hang out until we get to a resolution,"
Brien added.
    At an International Monetary Fund event on Thursday, Powell said a surge in
spending as the U.S. economy reopens, along with bottlenecks in supply, will
likely push prices higher this year, but would not result in the kind of yearly
price increases that would constitute inflation. 
    Friday's data, which showed U.S. producer prices increased more than
expected in March, helped propel yields higher in the morning session. U.S.
producer prices posted the largest annual gain in 9-1/2 years, fitting in with
expectations for higher inflation as the economy reopens.   
    Going into next week, investors looked to Treasury supply of $120 billion in
3-year, 10-year, and 30-year debt that could pressure prices and push yields
higher.
    "Supply remains very much top of mind and following what had been a nearly
universally smooth underwriting process throughout the bulk of the pandemic, the
volatility in the primary market lately has drawn renewed focus on Treasury
auction," BMO Capital Markets said in a research note. 
    Investors are also looking at U.S. consumer prices data next week, with the
monthly index seen at 0.2% and a yearly gain of 1.5%.
    In afternoon trading, the U.S. 10-year Treasury yield rose to 1.662% from
1.632% on Thursday.
    U.S. 20-year yields defied Friday's trend, falling to 2.223%,
from 2.224% on Thursday.
    U.S. 30-year yields were up at 2.337% from Thursday's 2.322%.
    U.S. 5-year note yields, which typically reflect interest rate expectations,
rose for the first time in five days to 0.875% from Thursday's 0.84%.
    On the week, the 5-year yields dropped nearly 5 basis points, the largest
fall since mid-December.
    The yield curve, which has become a barometer of risk sentiment in the bond
market, steepened on Friday following the data. The spread between U.S. 2-year
and 10-year yields rose to 149.90 basis points. 
    
      April 9 Friday 3:42PM New York / 1942 GMT
                                 Price         Current    Net
                                               Yield %    Change
                                                          (bps)
 Three-month bills               0.0125        0.0127     -0.002
 Six-month bills                 0.0375        0.038      0.005
 Two-year note                   99-239/256    0.1588     0.010
 Three-year note                 99-190/256    0.3387     0.019
 Five-year note                  99-112/256    0.8659     0.026
 Seven-year note                 99-130/256    1.3242     0.028
 10-year note                    95-40/256     1.6603     0.028
 20-year bond                    94-128/256    2.2191     -0.005
 30-year bond                    90-36/256     2.3355     0.013
                                                          
   DOLLAR SWAP SPREADS                                    
                                 Last (bps)    Net        
                                               Change     
                                               (bps)      
 U.S. 2-year dollar swap spread   12.25         -0.50     
 U.S. 3-year dollar swap spread   14.75         -0.50     
 U.S. 5-year dollar swap spread   11.00         -0.75     
 U.S. 10-year dollar swap          2.50          0.00     
 spread                                                   
 U.S. 30-year dollar swap        -22.00          2.00     
 spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Toby Chopra and Will Dunham)
  
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