TREASURE – U.S. yields fall as poor data stoke speculation over Fed rate hike pause

By Herbert Lash NEW YORK, Oct 25 (Reuters) – Treasury yields fell as prices rallied on Tuesday after dismal data on house prices, consumer confidence and manufacturing fueled the hope that the Federal Reserve will have to slow down its aggressive tightening of monetary policy. Home prices in the United States fell more than expected in August, according to the S&P CoreLogic Case-Shiller index, and two of the three components of the Richmond Fed’s Imanufacturing index notably deteriorated in October. A third report showed that consumer confidence fell sharply in September, according to the Conference Board’s Current Conditions of Consumer Confidence Index. Benchmark 10-year Treasury yields fell sharply to just over 4% and two-year bond yields, which reflect inflation expectations, also fell. The data has fueled market speculation that the Fed is considering how to start slowing its interest rate hikes, said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco. “Markets certainly think all this data is going to make the Fed blink, not in November, but later,” she said. The 10-year bond yield fell 13.8 basis points to 4.094%. The 30-year Treasury bond yield fell 9.1 basis points to 4.271%. The spread between two- and ten-year Treasury yields, seen as a harbinger of recession, was -34.5 basis points. The two-year US Treasury yield, which generally moves in line with interest rate expectations, fell 5.9 basis points to 4.439%. The five-year US Treasury Inflation-Protected Securities (TIPS) break-even rate was last at 2.656%. The 10-year TIPS break-even rate was last at 2.535%, indicating that the market expects inflation to average around 2.5% per year over the next decade. The five-year U.S. dollar inflation-linked swap, seen by some as a better gauge of inflation expectations due to possible distortions caused by Fed quantitative easing, last stood at 2.570%. The Treasury will sell $42 billion worth of two-year notes at auction. Results will be announced just after 1:00 p.m. (5:00 p.m. GMT). Oct 25 Tuesday 10:58 am New York / 1458 GMT Price Current Net Yield % Change (bps) Three-Month Bills 3.9775 4.0742 -0.015 Six-Month Bills 4.3625 4.5228 -0.024 Two-Year Notes 99- 167/256 4.4386 -0.059 3-year bond 99-136/256 4.4197 -0.099 5-year bond 99-138/256 4.229 -0.128 7-year bond 98-76/256 4.1601 -0.141 10-year bond 89-56/256 4.0958 -0.136 20- 1-year bond 85-124/256 4.4887 -0.109 30-year bond 78-176/256 4.2706 -0.091 DOLLAR SWAP SPREADS Last (bps) Change spread (bps) 2-year US dollar swap spread 36.25 -0.25 3-year US dollar swap spread 12.00 1.50 5-year US dollar swap spread 4.75 1.75 US dollar swap spread 10-year 1.25 1.00 30-year US dollar swap spread -48.75 1.00 (Reporting by Herbert Lash; editing by Jonathan Oatis)

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