November 14, 2018 / 6:04 PM / a month ago

TREASURIES-U.S. yields turn lower as Wall Street falls

    * U.S. 10-year, 2-year yields fall to 2-week lows
    * U.S. headline CPI rises in Oct; core CPI in line with
forecast 
    * Wall Street shares fall, drags yields lower

 (Recasts, adds comment, updates prices, table)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 14 (Reuters) - U.S. Treasury yields reversed
course and fell on Wednesday, as investors fretted that renewed
weakness on Wall Street could be signaling much deeper problems
in the world's largest economy.
    U.S. benchmark 10-year and two-year yields dropped to
two-week troughs, while the 30-year yield hit the day's lows. 
    Earlier in the session, yields rallied, bolstered by 
earlier gains in U.S. stocks and continued optimism about
Britain's exit from the European Union.
    But the direction has since changed, as U.S. stock indexes
fell, with Apple Inc leading a decline in technology
stocks.
    "There is more thought that maybe there is something more to
the stock market's weakness, that maybe it's starting to signal
something about the economy, rather than just it being about
trading or moving positions around," said Lou Brien, market
strategist at DRW Trading in Chicago. 
    "The long end, in particular, will be very much attuned to
stock market movements," he added.
    In midday trading, benchmark 10-year note yields fell to
3.123 percent, from 3.145 percent late on Tuesday.
Ten-year yields earlier dropped to a two-week low of 3.121
percent.
    U.S. 30-year yields slipped to 3.356 percent
compared with Tuesday's 3.367 percent.
    On the short end of the curve, U.S. two-year yields fell to
a two-week low of 2.871 percent, down from 2.895 percent on
Tuesday.
    Yields earlier gained some support from in-line U.S. core
inflation data for October, which should keep the Federal
Reserve firmly on track to raise interest rates next month and a
few more times in 2019.
    Data showed on Wednesday that the U.S. consumer price index
rose 0.3 percent last month after edging up 0.1 percent in
September. October's rise was the largest in nine months amid
gains in the cost of gasoline and rents.
    Excluding the volatile food and energy components, CPI
climbed 0.2 percent. The so-called core CPI had gained 0.1
percent for two straight months.
    Andrew Hunter, U.S. economist at Capital Economics in
London, said the rebound in headline CPI was mostly driven by a
rise in gasoline prices, which will be more than reversed over
the next couple of months with the decline in oil prices.
    "The rest of the report supports our view that underlying
inflation is unlikely to rise much further from here," he added.
    That said, Hunter noted that the Fed will still likely
continue hiking interest rates once a quarter in the near term,
with the next move coming in December. 
    "But with little sign that a more marked acceleration in
inflation lies ahead, Fed officials won't hesitate to back away
from further tightening if economic growth slows."  
    
      November 14 Wednesday 12:36PM New York / 1736 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.335        2.3815    0.000
 Six-month bills               2.455        2.5204    -0.011
 Two-year note                 100-2/256    2.8705    -0.024
 Three-year note               99-222/256   2.9216    -0.030
 Five-year note                99-162/256   2.955     -0.032
 Seven-year note               99-196/256   3.0375    -0.031
 10-year note                  100-8/256    3.1213    -0.024
 30-year bond                  100-96/256   3.3551    -0.012
                                                      
   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        16.50         0.25    
 spread                                               
 U.S. 5-year dollar swap        14.00         0.75    
 spread                                               
 U.S. 10-year dollar swap        6.25         0.50    
 spread                                               
 U.S. 30-year dollar swap      -10.25         0.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea
Ricci)
  
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