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Longer-dated US yields dip, 10-year eyes biggest weekly drop of year

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By Chuck Mikolajczak

NEW YORK, June 14 (Reuters) -Longer-dated U.S. Treasury yields slipped on Friday, after economic data provided the latest evidence this week that inflation may be cooling, with the benchmark 10-year Treasury yield on track for its biggest weekly drop of the year.

The Labor Department said U.S. import prices dropped 0.4% last month, below the estimate for a 0.1% rise, after an unrevised 0.9% jump in April as prices for energy products retreated, another positive sign for the inflation outlook.

The report comes after data earlier this week indicated the labor market and price pressures were showing signs of cooling.

A separate preliminary reading of consumer sentiment from the University of Michigan showed a weakening in June that was below expectations and the final reading for May, while inflation worries remained.

"We are now resuming the trend of moderating inflation, but clearly after 1Q disappointments the Fed doesn't want to come across as saying that the battle is won we can now proceed with cutting rates without having more confirmation that this recent improvement in inflation trends are here to stay," said Andrzej Skiba, head of the BlueBay U.S. fixed income team at RBC Global Asset Management in Stamford, Connecticut.

"We do not see a reason why September could not be the month where they cut for the first time but again, they need to see a few more decent inflation prints to get that confidence."

The yield on the benchmark U.S. 10-year Treasury note US10YT=RR fell 2.9 basis points (bps) to 4.211%. The yield is down nearly 22 bps on the week, on track for its biggest weekly fall since mid-December.

On Wednesday, the Federal Reserve held interest rates steady on Wednesday and pushed out the start of rate cuts to perhaps as late as December.

Skiba also said concerns about the upcoming parliamentary election in France was weighing on yields.

The yield on the 30-year bond US30YT=RR fell 5.6 basis points to 4.345%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at a negative 48.3 basis points.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, rose 0.4 basis points to 4.692%.

Federal Reserve Bank of Cleveland President Loretta Mester said in an interview on CNBC that the latest round of inflation data is good news for the economy and the central bank.

Also scheduled to speak on Friday are Chicago Fed President Austan Goolsbee and Fed Governor Lisa Cook.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR was last at 2.137% after closing at 2.166% on June 13.

The 10-year TIPS breakeven rate US10YTIP=RR was last at 2.184%, indicating the market sees inflation averaging about 2.2% a year for the next decade.

Monthly change in US Import Price Index https://reut.rs/3VrhAi6

Inflation expectations of US consumers https://reut.rs/3xt8Jo2

Reporting by Chuck Mikolajczak, Editing by Franklin Paul


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