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TREASURIES-Most yields hit lowest since Nov. after weak U.S. data

* U.S. CPI dips 0.1 percent in May

* U.S. retail sales fall 0.3 percent in May

* Weak U.S. data reduces bets on third 2017 Fed rate increase

* Fed to release policy decision at 2 p.m EDT (1800 GMT)

NEW YORK, June 14 (Reuters) - Medium- and long-dated U.S. Treasury yields fell to their lowest levels since November on Wednesday after disappointing U.S. inflation and retail sales data reduced expectations that the Federal Reserve would raise interest rates in the second half of the year. The Fed is expected to raise interest rates for the second time this year later on Wednesday, but the signs of moderate consumer spending and retreating inflation pressures could worry policymakers who have previously viewed the softness as transitory. The central bank is scheduled to release its decision at 2 p.m EDT (1800 GMT) at the conclusion of its two-day policy meeting. Fed Chair Janet Yellen is due to hold a news conference at 2:30 pm EDT (1830 GMT). The Labor Department said its Consumer Price Index dipped 0.1 percent in May. The so-called core CPI, which strips out food and energy costs, increased 1.7 percent year-on-year, the smallest rise since May 2015. In the 12 months through May, the CPI increased 1.9 percent, the smallest increase since last November. The Fed has a 2 percent inflation target and tracks an inflation measure which is currently at 1.5 percent. In a separate report, the Commerce Department said retail sales fell 0.3 percent last month. "We think this effectively takes September off the table," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York, in reference to the impact of the data on the probability of a September Fed rate increase. U.S. interest rates futures rose after the data, suggesting traders reduced their bets on a possible third Fed interest rate increase in 2017. Benchmark 10-year Treasury yields and seven-year yields hit their lowest levels since Nov. 10 of 2.120 percent and 1.928 percent, respectively, while 30-year yields hit their lowest since Nov. 9 of 2.791 percent and five-year yields hit their lowest since Nov. 17 of 1.689 percent. U.S. three- and two-year yields, which are considered most vulnerable to Fed rate increases, hit one-week lows of 1.431 percent and 1.303 percent, respectively. "The CPI core, along with the PCE core inflation measures, are starting to look like that whole story of returning to a 2 percent target is more wishful thinking than a solid outlook," said Lou Brien, a market strategist at DRW Trading in Chicago.

June 14 Wednesday 10:27AM New York / 1427 GMT Price

US T BONDS SEP7 155-19/32 1-18/32 10YR TNotes SEP7 127-20/256 0-180/25

6

Price Current Net Yield % Change

(bps)

Three-month bills 0.9875 1.0037 -0.005 Six-month bills 1.0925 1.1138 -0.015 Two-year note 99-228/256 1.3067 -0.056 Three-year note 100-46/256 1.4386 -0.066 Five-year note 100-64/256 1.6972 -0.083 Seven-year note 100-108/256 1.9349 -0.084 10-year note 102-56/256 2.1255 -0.082 30-year bond 104-40/256 2.794 -0.068

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 19.75 0.00

spread

U.S. 3-year dollar swap 17.75 0.00

spread

U.S. 5-year dollar swap 9.25 0.50

spread

U.S. 10-year dollar swap -2.25 0.50

spread

U.S. 30-year dollar swap -38.25 1.75

spread

(Reporting by Sam Forgione; Editing by Nick Zieminski)