TREASURIES-U.S. yields fall after inflation shows signs of cooling

BY Reuters | TREASURY | 09/14/21 09:37 AM EDT
       By Rodrigo Campos
    NEW YORK, Sept. 14 (Reuters) - U.S. government bond yields
slipped on Tuesday after data showed consumer prices increased
at their slowest pace in six months in August, suggesting that
inflation had probably peaked.
    The core measure of U.S. consumer prices edged up 0.1% last
month, the smallest gain since February. The measure, which
excludes the volatile food and energy components, increased 4.0%
on a year-on-year basis after advancing 4.3% in July.
    The data could be volatile in coming months as shortages of
basic materials and parts have created bottlenecks, and price
increases, across various supply chains.
    But the August slowdown gives the Federal Reserve breathing
room as it prepares to reduce its massive bond holdings and
decide how soon to begin lifting rates from near zero.
    "The big question for the Fed is going to be whether this
further moderation pushes inflation lower in the next few
months, and whether inflation significantly cools. And that
could be interesting for the rate hike component of all of this,
which they have been very careful to divorce from tapering,"
said Gennadiy Goldberg, interest rate strategist at TD
Securities in New York.
    The yield on 10-year Treasury notes was down 1.8
basis points to 1.306%.
    The yield on the 30-year Treasury bond was down
1.3 basis points to 1.892%.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 0.8
basis points at 0.207%.

      September 14 Tuesday 9:30AM New York / 1330 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.045        0.0456    0.000
 Six-month bills               0.05         0.0507    0.000
 Two-year note                 99-215/256   0.207     -0.008
 Three-year note               99-216/256   0.4275    -0.014
 Five-year note                99-214/256   0.7838    -0.021
 Seven-year note               100-68/256   1.0853    -0.020
 10-year note                  99-124/256   1.3056    -0.018
 20-year bond                  98-216/256   1.8194    -0.015
 30-year bond                  102-120/256  1.8915    -0.013

                               Last (bps)   Net
 U.S. 2-year dollar swap        10.00         0.25
 U.S. 3-year dollar swap        11.25         0.50
 U.S. 5-year dollar swap         9.50         0.00
 U.S. 10-year dollar swap        2.25         0.00
 U.S. 30-year dollar swap      -25.50         0.50

 (Reporting by Rodrigo Campos and Karen Brettell;
Editing by Bernadette Baum)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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