October 26, 2018 / 6:43 PM / a month ago

CORRECTED-TREASURIES-U.S. yields fall to three-week lows as equities tumble

 (Corrects prices in paragraphs 10 and 11)
    * Treasury moves taking cues from stocks
    * Consumer spending boosts third-quarter GDP
    * Oil price drop reduces inflation expectations

    By Karen Brettell
    NEW YORK, Oct 26 (Reuters) - U.S. Treasury yields dropped to
three-week lows on Friday as stocks sank in volatile trading,
boosting demand for safe-haven government debt.
    Disappointing earnings reports from Amazon.com Inc         
and Alphabet Inc           rekindled a rush to dump technology
and high-growth stocks.             
    Stock markets around the world were on track for their
longest weekly losing streak since 2013.             
    “It’s a global flight to safety," said Collin Martin,
director, fixed income, at the Schwab Center for Financial
Research in New York.
    Treasuries have largely moved in lock-step with stocks this
week, with yields rising and falling with equity prices.
    “At this point, the rout in equities and broader
deterioration in risk sentiment seems to be the primary driver
of the rally in Treasuries,” said Jonathan Cohn, an interest
rate strategist at Credit Suisse in New York.
    A drop in oil prices this month is also a large factor
behind bond strength, because it has reduced inflation
expectations.
    “This has been a move driven by inflation expectations
primarily,” said Cohn.
    U.S. crude prices        were trading at $67.52 on Friday,
from $76.90 on Oct. 3.
    Benchmark 10-year Treasury yields             fell as low as
3.057 percent on Friday, the lowest level since Oct. 3, before
rising back to 3.083 percent. The yields are down from a more
than seven-year high of 3.261 percent hit on Oct. 9.
    Oil hit its highest level since 2014 on Oct. 3, which was
the same day that Treasury yields broke above their then-range
on the way to the recent high.
    There is speculation that if the weakness in equity markets
persists, it could derail the Federal Reserve’s plans to further
hike interest rate.
    Loretta Mester, president of the Cleveland Fed, said on
Thursday that the recent cratering of stock markets is nowhere
near severe enough to rattle confidence and significantly hurt
U.S. business and consumer spending.             
    The Commerce Department on Friday reported that
third-quarter gross domestic product increased at an annualized
rate of 3.5 percent, slowing less than expected as a
tariff-related drop in soybean exports partially offset by the
strongest consumer spending in nearly a four years and a surge
in inventory investment.             
    “It was a pretty good GDP result on balance,” said Guy
LeBas, chief fixed-income strategist at Janney Montgomery Scott
in Philadelphia. “It seems like the Treasury markets are taking
this as modestly economically positive, bond negative.”

 (Reporting by Karen Brettell
Additional reporting by Sinéad Carew in New York
Editing by Leslie Adler)
  
 
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