NEW YORK, Oct 14 (Reuters) – The benchmark U.S. 10-year
Treasury yield fell on Thursday after data on the labor market
and inflation eased worries that the Federal Reserve may need to
take action earlier than expected to combat rising prices.
Weekly initial claims for state unemployment benefits
dropped 36,000 to a seasonally adjusted 293,000 versus
expectations of 316,000. Other data showed the producer price
index for final demand increased 0.5% in September after
advancing 0.7% in August and was just shy of the 0.6% estimate.
Shorter-term yields have risen over the past two days while
longer dated yields have dipped, which has served to flatten the
yield curve, indicating the market is anticipating a rate hike
by the Fed.
The gap between yields on two- and 10-year Treasury notes
, seen as an indicator of economic expectations,
touched a two-week low on Wednesday after data showed consumer
prices increased solidly in September and were likely to keep
moving higher.
“Today makes more sense, there was a fear that CPI was going
to print way worse than consensus,” said Jay Hatfield, founder
and CEO of Infrastructure Capital Management in New York. “The
CPI data yesterday wasn’t worthy of the move. It’s a little bit
of a relief rally.”
The yield on 10-year Treasury notes was down 2.3
basis points to 1.526%.
Still, the yield gap on two- and 10-year Treasury notes
flattened for a third straight day and was at 117.1
basis points after falling to 116.4, its lowest level since
Sept. 24.
St. Louis Fed President James Bullard said the current high
levels of inflation may not abate as soon as many Federal
Reserve policymakers expect, and again urged the central bank to
pursue a faster taper of its bond-buying program.
San Francisco Federal Reserve Bank President Mary Daly on
Thursday said inflation and employment have made enough progress
for the U.S. central bank to begin scaling back its monthly bond
buying, but is far from ready for interest rate hikes.
The yield on the 30-year Treasury bond was down
0.7 basis points to 2.034%.
The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 1.4
basis points at 0.354%.

October 14 Thursday 10:32AM New York / 1432 GMT
US T BONDS DEC1 159-30/32 0-9/32
10YR TNotes DEC1 131-112/256 0-56/256
Price Current Net
Yield % Change
Three-month bills 0.045 0.0456 -0.005
Six-month bills 0.0575 0.0583 0.000
Two-year note 99-204/256 0.3541 -0.014
Three-year note 99-248/256 0.6355 -0.026
Five-year note 99-30/256 1.0582 -0.029
Seven-year note 99-84/256 1.3515 -0.025
10-year note 97-124/256 1.5264 -0.023
30-year bond 99-64/256 2.0336 -0.007

Last (bps) Net
U.S. 2-year dollar swap 13.75 0.75
U.S. 3-year dollar swap 14.25 0.75
U.S. 5-year dollar swap 7.50 0.25
U.S. 10-year dollar swap 1.00 0.00
U.S. 30-year dollar swap -24.50 -1.00

(Reporting by Chuck Mikolajczak; Editing by Will Dunham)
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