* U.S. core PCE year-on-year rises 3.1%
* Chicago PMI jumps in May
* Month-end buying boosts Treasury prices, weighs on yields
* U.S. 10-year breakeven inflation slips
(Adds analyst comment, bullets, U.S. data, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 28 (Reuters) - U.S. Treasury yields fell on
Friday in a shortened trading session on month-end buying by
portfolio managers, with the market largely shrugging off a rise
in U.S. core inflation above the Federal Reserve's target.
The bond market closes early ahead of the U.S. Memorial Day
holiday weekend.
Data on Friday showed that underlying inflation in the 12
months to April, as measured by the personal consumption
expenditures (PCE) price index, excluding the volatile food and
energy components, climbed to 3.1%, far above the Fed's 2%
target.
On a monthly basis, though, the core PCE rose 0.7% in April,
after gaining 0.4% in March. Wall Street economists expected a
0.6% rise in core PCE.
"The market is clearly taking inflation in stride. The
inflation numbers are not really adding to jitters," said Kim
Rupert, managing director for fixed income at Action Economics
in San Francisco.
"The market believes the Fed that inflation is transitory.
The bulls are having their way."
Barclays estimates that its duration index extends out 0.13
years, versus the long run average of 0.09 years, according to
Rupert, which means asset managers need to buy Treasuries to hit
that index.
In midday trading, the U.S. 10-year Treasury yield fell to
1.589% from 1.61% late on Thursday.
U.S. 30-year yields dropped to 2.267% from
Thursday's 2.29%.
U.S. yields briefly edged up from lows after business
activity in the U.S. Midwest jumped more than expected in May,
accelerating to its highest level since November 1973 according
to a report on Friday. The Chicago Business barometer rose to
75.2 from 72.1 in April, according to MNI Chicago.
The U.S. 10-year inflation breakeven, the bond market's
gauge of investors' price outlook over the next 10 years, was
down at 2.436% from Thursday's 2.44%. In mid-May,
10-year breakeven inflation hit 2.564%, the highest since March
2013.
The White House on Friday will present President Joe Biden's
estimated $6 trillion budget with spending on infrastructure,
education and other initiatives, but the plan is unlikely to
sway Republicans who want to tamp down U.S. government spending.
The $6 trillion figure, first reported on Thursday, caused a
sell-off in Treasuries as this meant the government would have
to flood the market with debt to finance the budget.
May 28 Friday 12:14PM New York / 1614 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 0.015 0.0152 0.005
Six-month bills 0.0325 0.033 0.003
Two-year note 99-246/256 0.1446 -0.002
Three-year note 99-218/256 0.3005 -0.005
Five-year note 99-194/256 0.7995 -0.015
Seven-year note 99-240/256 1.2594 -0.020
10-year note 100-84/256 1.5892 -0.021
20-year bond 101-16/256 2.184 -0.017
30-year bond 102-84/256 2.2675 -0.023
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 8.25 0.25
spread
U.S. 3-year dollar swap 12.50 0.50
spread
U.S. 5-year dollar swap 7.75 1.00
spread
U.S. 10-year dollar swap -3.50 0.50
spread
U.S. 30-year dollar swap -28.50 0.75
spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Kevin Liffey
and Richard Chang)
