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TREASURIES-Traders rethink CPI message and send down yields

 (Recasts and updates with market activity, analyst comment)
    By Ross Kerber
    June 10 (Reuters) - Investors reversed course and sent
longer-term U.S. Treasury yields lower during a see-saw trading
session on Thursday, suggesting an embrace of the view that
inflationary pressures are temporary.
    The benchmark 10-year yield was down 2.2 basis
points at 1.4671% in afternoon trading, near its low for the
session and the least since March.
    The yield had trended down from a high of 1.535% on Thursday
morning, reached soon after the U.S. Labor Department said its
consumer price index increased 0.6% last month after surging
0.8% in April. Separately, the department said
initial claims for state unemployment benefits fell to their
lowest level in 15 months.
    The drop in yields after the initial surge showed the market
growing more comfortable with the message from U.S. Federal
Reserve officials that inflationary pressures are temporary as
the U.S. economy reopens quickly, said Andy Richman, Sterling
Capital Management managing director.
    "It's buying into the Fed's wait-and-see approach," Richman
said.
    The trading moved down the part of the U.S. Treasury yield
curve measuring the gap between yields on two- and 10-year
Treasury notes, seen as an indicator of economic
expectations. It was at 131 basis points, about 2 basis points
lower than Wednesday's close and also its lowest since March.
    Demand for 30-year bonds sold at auction at 1 p.m. was
"mixed," according to a note from BMO Capital Markets rates
strategist Ben Jeffery, with a bid-to-cover ratio of 2.29 versus
an average of 2.38.
    The 10-year TIPS yield was at -0.889% and the
breakeven inflation rate was at 2.348%.
    The amount of money flowing into the Fed's reverse
repurchase facility was nearly $535 billion, the fourth day in a
row it hit a record high and putting pressure on short-term
interest rates.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down less
than a basis point at 0.1508%.
    The yield on the one-month bill was at 0.0025%,
the lowest since May when it touched 0% for the first time since
March 2020.
     
  June 10 Thursday 1:57 PM New York / 1757 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.025        0.0253    0.000
 Six-month bills               0.04         0.0406    0.000
 Two-year note                 99-243/256   0.1508    -0.004
 Three-year note               99-214/256   0.305     -0.008
 Five-year note                100-18/256   0.7356    -0.009
 Seven-year note               100-172/256  1.1494    -0.017
 10-year note                  101-116/256  1.4671    -0.022
 20-year bond                  102-192/256  2.0807    -0.015
 30-year bond                  104-176/256  2.1614    -0.007
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         6.75         0.25    
 spread                                               
 U.S. 3-year dollar swap         9.00         0.75    
 spread                                               
 U.S. 5-year dollar swap         7.00         0.00    
 spread                                               
 U.S. 10-year dollar swap       -2.75         0.25    
 spread                                               
 U.S. 30-year dollar swap      -30.25        -0.50    
 spread (Reporting by Ross Kerber in Boston
Editing by Chizu Nomiyama)
  
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