Treasuries-US bonds advance after benign producer prices data

Also on Thursday, the Treasury is set to auction $25 billion in new 30-year bonds. In the when-issued market, where the bond is traded before it is actually sold, the new debt has a projected yield of around 5.18%. Vail Hartman, U.S. rates strategist at BMO Capital, wrote in a research note that the sale would be the highest-yielding 30-year auction in several decades. "On top of the substantial outright discount, valuations look solid on the curve," he added. U.S. Treasuries rallied on Thursday after data showed tame producer prices in July, generally coming in line with market forecasts, paring back expectations that the Federal Reserve will raise interest rates at its policy meeting next month. In morning trading, U.S. two-year yields, which are sensitive to the outlook for interest rate moves, fell to their lowest since mid-July and were last down 6.2 basis points (bps) to 4.136% >. Falling yields mean bond prices are higher. The benchmark 10-year yield slid 6.3 bps to 4.629% US10YT=RR, while the U.S. 30-year bond yield was down 5 bps at 5.196% US30YT=RR. In other parts of the Treasury market, the yield curve steepened following the PPI data, with the gap between 2-year and 10-year yields hitting 50.6 bps US2US10=TWEB, the widest spread since May 22. It was last at 48.3 bps, compared with 48.9 bps late Wednesday. The curve showed a bull steepener, in which short-term interest rates are dropping more sharply than longer-dated ones, suggesting that the market is pricing out Fed tightening. This scenario is backed by the U.S. rate futures market. Following the PPI report, U.S. fed funds futures priced in on Thursday just a 32% chance of a rate increase at the September Fed meeting, down from 41% late on Wednesday. Traders also expected 24 bps of tightening by the end of the year after the data, compared with 27 bps on Wednesday. Data showed that the U.S. Producer Price Index (PPI) was unchanged last month, following a revised 0.1% drop in June. Economists polled by Reuters had forecast the PPI rebounding 0.2%. In the 12 months through July, the PPI increased 4.7% after advancing 5.5% in June. The forecast was for a 4.9% increase year-on-year. "It's a continuation of the kind of story that we've seen playing out recently, which is prices do seem to be coming down incrementally, or inflation is decelerating incrementally," said Bill Merz, head of capital markets research and portfolio construction at U.S. Bank Asset Management in Minneapolis. "At the same time, the price pressures that do exist haven't been crimping consumer spending, haven't been crimping or limiting earnings growth that we're seeing across the global capital markets." Thursday's data also showed U.S. initial jobless weekly claims increased modestly, suggesting that the labor market remains stable despite July's surprise job losses. Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 209,000 for the week ended August 8, according to the Labor Department. Economists polled by Reuters had forecast 202,000 claims for the latest week. The report added to expectations that the Fed will remain on hold at the September meeting.

Treasuries-US bonds advance after benign producer prices data

Focus on 30-year bond auction

Treasuries rally after tame producer prices data

Yield curve steepens as futures lower rate-hike odds

Producer prices and jobless claims support hold expectations

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