TREASURIES-U.S. yields slide after inflation data in risk-off backdrop

       By Gertrude Chavez-Dreyfuss
    NEW YORK, July 30 (Reuters) - U.S. Treasury yields fell on
Friday, as risk aversion reigned in financial markets once again
after an earnings miss from tech giant Amazon.com (AMZN)
weighed on stocks, and amid nagging concerns about the economic
impact of the raging Delta coronavirus variant.
    Friday's U.S. data also showed core inflation rising less
than forecast in June, setting back expectations that the
Federal Reserve would reduce its asset purchases soon. That has
pushed yields lower as well.
    The yield curve, a gauge of economic sentiment and rate move
expectations, flattened to 105 basis points, as measured by the
spread between two-year and 10-year yields.
     Data showed that the personal consumption expenditures
(PCE) price index, excluding the volatile food and energy
components, rose 0.4% in June, or 3.5% in the 12 months through
June.
    Economists polled by Reuters had forecast the core PCE price
index surging 3.7% year-on-year. The core PCE price index is the
Federal Reserve's preferred inflation measure for its flexible
2% target.
    "The weaker-than-expected inflation data will probably
affirm the view that the Fed is not moving toward tighter policy
anytime soon," said Zachary Griffiths, macro strategist at Wells
Fargo Securities in Charlotte, North Carolina.
    "This could push out expectations for when the taper will be
announced and eventually enacted," he added.
    The Fed on Wednesday, after a two-day meeting said higher
inflation remained the result of "transitory factors," and was
not an imminent risk to the economy or the Fed's policy plans.
    In mid-morning trading, the U.S. 10-year Treasury yield was
down at 1.232%, compared with 1.269% late on
Thursday.
    The highly-contagious Delta variant has prompted the U.S.
Centers for Disease Control and Prevention (CDC) to change its
guidance on mask wearing, reinstituting it as a precaution
against the possible transmission of the virus by fully
vaccinated people.
    "A year and a half into this pandemic, and when it looked as
if the United States was on its way to smooth sailing, the water
has once again become muddied," said Gregory Faranello, head of
U.S. rates at Amerivet Securities in New York.
    U.S. stocks were also lower on the day following a glum
quarterly earnings report from Amazon (AMZN).
    U.S. 30-year yields fell to 1.891% from
Thursday's 1.916%.
    In other parts of the Treasury market, the yield on 10-year
Treasury Inflation-Protected Securities (TIPS) plunged to a
another record low of -1.176% US10YTIP=RR, as investors priced
in higher inflation going forward.
    The U.S. 10-year inflation breakeven, the bond market's
gauge of investors' price outlook over the next 10 years, was
down at 2.397% from Thursday's 2.418%. In mid-May, 10-year
breakeven inflation hit 2.564%, the highest since March 2013.

      July 30 Friday 10:39 AM New York / 1439 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.045        0.0456    0.000
 Six-month bills               0.0525       0.0532    0.000
 Two-year note                 99-223/256   0.1898    -0.011
 Three-year note               100-18/256   0.351     -0.019
 Five-year note                99-162/256   0.6999    -0.030
 Seven-year note               99-248/256   1.0046    -0.039
 10-year note                  103-160/256  1.2306    -0.038
 20-year bond                  107-100/256  1.8041    -0.031
 30-year bond                  111          1.8903    -0.026

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap         7.75         0.50
 spread
 U.S. 3-year dollar swap        12.00         0.25
 spread
 U.S. 5-year dollar swap         9.00         0.25
 spread
 U.S. 10-year dollar swap        2.50        -0.25
 spread
 U.S. 30-year dollar swap      -24.25        -0.50
 spread


 (Reporting by Gertrude Chavez-Dreyfuss)

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