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TREASURIES-U.S. yields tumble after Draghi comments on possible easing

Gertrude Chavez-Dreyfuss

* Draghi says ECB to launch more stimulus if inflation stays low European bond yields fall after Draghi's comments

* U.S. housing starts decline

(Adds comment, byline, table, details) NEW YORK, June 18 (Reuters) - U.S. Treasury yields sank on Tuesday, in line with Europe, weighed down by comments from European Central Bank President Mario Draghi hinting at more stimulus if the region's inflation fails to pick up toward its target. U.S. benchmark 10-year yields fell to their lowest since early September 2017, while 30-year yields dropped to their weakest level since late October 2016. "(We) will use all the flexibility within our mandate to fulfill our mandate - and we will do so again to answer any challenges to price stability in the future," Draghi said on Tuesday. "Monetary policy remains committed to its objective and does not resign itself to too-low inflation." German bond yields hit record lows deep in negative territory and French 10-year yields turned negative for the first time after Draghi's comments. "Draghi was extremely dovish and this had a big impact on Treasuries as we anticipate the Federal Reserve," said Ellis Phifer, market strategist at Raymond James in Memphis, Tennessee. He doesn't believe the Fed will cut rates this month, or be as dovish as Draghi. "Draghi gave a view that was much more imminent. I think the Fed is not going to be as transparent," Phifer said. "I think there are still signs that the United States is stronger than Europe, but obviously Europe becomes an issue for global growth if it continues to decline." The Fed starts its two-day meeting on Tuesday. Analysts expect the Fed to hold interest rates steady at the meeting, but think it could alter its interest rate forecasts and change its language to set the stage for possible easing this year. In morning trading, U.S. 10-year note yields fell to 2.068% from 2.086% late on Monday, after earlier falling to 2.016%, the lowest since September 2017. Yields on U.S. 30-year bonds dropped to 2.556%, from 2.577% on Monday. Earlier in the session, 30-year yields dropped to a nearly 2-1/2-year trough of 2.513%. On the short end of the curve, U.S. 2-year yields were down at 1.858% from Monday's 1.865%. U.S. Treasury prices earlier rallied in response to an announcement by the United States on Monday that it would deploy 1,000 more troops in the Middle East, citing concerns about a threat from Iran. On Tuesday, Iran said it would not wage war against any nation. Tuesday's softer-than-expected U.S. housing data did not help yields at all. Housing starts dropped 0.9% to a seasonally adjusted annual rate of 1.269 million units in May amid a fall in the construction of single-family housing units, the Commerce Department said on Tuesday.

June 18 Tuesday 10:28AM New York / 1428 GMT

Price Current NetYield % Change

(bps)

Three-month bills 2.1775 2.2262 0.028Six-month bills 2.1375 2.1969 -0.002Two-year note 100-131/256 1.8561 -0.009Three-year note 99-222/256 1.7958 -0.008Five-year note 100-202/256 1.8324 -0.015Seven-year note 101-52/256 1.939 -0.01910-year note 102-196/256 2.0647 -0.02130-year bond 106-176/256 2.5538 -0.023

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 2.50 -0.75

spread

U.S. 3-year dollar swap 1.75 -0.50

spread

U.S. 5-year dollar swap -1.25 0.00

spread

U.S. 10-year dollar swap -6.50 -0.50

spread

U.S. 30-year dollar swap -32.50 -0.50

spread

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci)