Top Stories
Top Stories

TREASURIES-Yields decline after tame core U.S. inflation data

Gertrude Chavez-Dreyfuss

* U.S. core inflation comes in lower than expected

* Fed minutes suggest no rate hikes this year

* ECB's Draghi highlights downside risks to euro zone

* U.S. 10-year note auction shows solid demand

(Adds results U.S. 10-year note auction, Fed minutes, new comment) NEW YORK, April 10 (Reuters) - U.S. Treasury yields slid on Wednesday, as tame underlying U.S. inflation data reinforced expectations that the Federal Reserve would hold interest rates steady or cut them once by the end of the year. Lower U.S. yields were also in line with falls in the European bond market after the European Central Bank affirmed its easing bias in the midst of downside risks to the eurozone economy. "There is a persistent trend of inflation underperformance that may soon become problematic for the Fed," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. Data showed that last month's U.S. core consumer prices, a key inflation gauge that the Fed monitors, rose 0.1 percent, lower than expectations of a 0.2 percent increase. Headline inflation, though, advanced 0.4 percent in March, boosted by rising gasoline prices and rents. Minutes of the last Federal Reserve meeting, also released on Wednesday, suggested that the U.S. central bank is likely to leave rates unchanged this year given risks to the economic outlook from a global slowdown and uncertainty over trade policies and financial conditions. "We have long expected that weaker growth would convince the Fed to reverse course with 75 basis points of rate cuts by the middle of 2020, with the first cut probably now coming before the end of this year," said Andrew Hunter, senior U.S. economist at Capital Economics in London. Further pressuring U.S. yields were downbeat comments on the economy by European Central Bank President Mario Draghi on Wednesday. The ECB's top official said risks to the euro zone economy remained tilted to the downside and that headline inflation is likely to decline over the coming months. His comments followed the ECB's dovish turn in March during its last monetary policy meeting when it restarted its stimulus program through a new round of cheap loans to banks. In afternoon trading, U.S. 10-year note yields fell to 2.472%, down from 2.499% late on Tuesday. U.S. 30-year bond yields also dipped to 2.898% from 2.909% on Tuesday. On the short end of the curve, U.S. 2-year yields slipped to 2.321%, compared with Tuesday's 2.344%. Supply was also a factor in Wednesday's market with the auction of $24 billion in U.S. 10-year notes. The sale was well-received, analysts said. The offering was priced at 2.466%, lower than the expected yield at the bid deadline. There were $61.3 billion in bids for a 2.55 bid-to-cover ratio, slightly below the prior 2.59, but slightly above the 2.50 average.

April 10 Wednesday 4 p.m. New York / 2000 GMT

Price Current NetYield % Change


Three-month bills 2.3725 2.42 -0.009Six-month bills 2.39 2.4528 -0.012Two-year note 99-220/256 2.3232 -0.021Three-year note 99-238/256 2.2744 -0.028Five-year note 99-74/256 2.277 -0.027Seven-year note 99-56/256 2.3722 -0.02510-year note 101-84/256 2.472 -0.02730-year bond 101-252/256 2.9001 -0.009


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 9.25 0.25


U.S. 3-year dollar swap 5.50 -1.00


U.S. 5-year dollar swap 2.75 -0.50


U.S. 10-year dollar swap -2.25 -0.25


U.S. 30-year dollar swap -25.50 -0.75


(Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis and Lisa Shumaker)