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Benchmark U.S. yield again retreats from one-year high

(Updates prices, adds stock market performance, Wells Fargo comment) By Chuck Mikolajczak NEW YORK, March 1 (Reuters) – Benchmark U.S. Treasury yields eased for a second straight session on Monday from a one-year high hit last week as Federal Reserve officials continued to downplay runaway inflation concerns, but a round of solid economic data curbed the decline. Federal Reserve Bank of Richmond President Thomas Barkin told the Wall Street Journal that while there is “daylight on the horizon” for the U.S. economy, he does not see inflation rising to problematic levels. “The market is digesting that the Fed is fully aware that inflation will be higher in the short term; it is not a surprise,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Devon, Pennsylvania. “The fact the market is now back in line with the Fed and the Fed’s views, it will limit the volatility we saw from last week.” Last week, the yield on the 10-year Treasury note hit a one-year high of 1.614%, sparked by rising expectations of an improving economy, inflation concerns and a weak seven-year auction. Even with the recent pullback, it is still up about 50 basis points on the year. Equity markets were heartened by the retreat in yields, with each of the three major indexes up more than 2%, with the S&P 500 on track for its biggest one-day percentage gain since June 5. Despite the concerns sparking volatility, Morgan Stanley strategist Vishwanath Tirupattur argued in a note on Sunday that “higher real yields along with rising inflation expectations create an environment where yields are rising for good reasons.” The 10-year yield briefly moved higher after a report from the Institute for Supply Management showed manufacturing activity in February was at a three-year high. Commerce Department data showed construction spending for January rose 1.7%, more than double the expected 0.8% increase. The prices paid component of the ISM data “is yet another indicator that inflation pressures are mounting,” said Wells Fargo Senior Economists Sarah House and Tim Quinlan in a note on Monday, “although Fed policymakers have repeatedly indicated they are more concerned about the labor market and would be willing to tolerate above-target inflation for a time.” Benchmark 10-year notes last rose 2/32 in price to yield 1.4513%, from 1.456% late on Friday. Still, the longer dated 30-year bond last fell 26/32 in price to yield 2.2205%, from 2.182% late on Friday, reflecting cautiousness. March 1 Monday 2:18PM New York / 1918 GMT Price US T BONDS JUN1 159-5/32 -0-2/32 10YR TNotes JUN1 133-32/256 0-104/25 6 Price Current Net Yield % Change (bps) Three-month bills 0.0375 0.038 -0.003 Six-month bills 0.055 0.0558 0.005 Two-year note 99-252/256 0.1328 -0.012 Three-year note 99-144/256 0.2736 -0.034 Five-year note 98-238/256 0.7185 -0.058 Seven-year note 99-248/256 1.1296 -0.045 10-year note 96-252/256 1.4513 -0.005 30-year bond 92-120/256 2.2205 0.039 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.25 -0.50 spread U.S. 3-year dollar swap 11.75 -0.25 spread U.S. 5-year dollar swap 10.75 2.00 spread U.S. 10-year dollar swap 7.00 1.25 spread U.S. 30-year dollar swap -26.25 2.50 spread (Reporting by Chuck Mikolajczak; Editing by Dan Grebler and Jonathan Oatis)

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