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US 10-year yield posts weekly gain of nearly 10 bps

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US 30-year hits 10-week high, up for eight straight days

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US two-year yield on track for biggest daily fall since

late

September

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US yield curve bull-steepens after data

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US rate futures price in 91% chance of 25-bps cut in

November

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prices)

By Gertrude Chavez-Dreyfuss and Alden Bentley

NEW YORK, Oct 11 (Reuters) - U.S. Treasury yields

slipped on Friday after an unchanged producer prices data

reading that was trending lower and a consumer-sentiment report

maintained chances of an interest-rate cut by the Federal

Reserve at next month's monetary-policy meeting.

The Treasuries market is closed on Monday for Columbus Day.

The unchanged reading in the producer price index for final

demand last month followed an unrevised 0.2% gain in August, the

Labor Department said. Economists polled by Reuters had forecast

the PPI edging up 0.1%. In the 12 months through September, the

PPI increased 1.8%, after climbing 1.9% in August, more than the

expected 1.6% rise.

The data followed news on Thursday that consumer prices rose

slightly more than expected in September, lifted by higher food

costs. The two reports supported views the Federal Reserve would

cut interest rates again by the more standard 25 basis points,

after September's aggressive 50-bps reduction.

Recent U.S. economic data is "creating confusion and will

create doubt" as to what the Fed does from here, said Christian

Hoffmann, head of fixed income at Thornburg Investment

Management in Santa Fe, New Mexico, with $46 billion in assets

under management.

"The market is still pricing in a high probability that we

cut at all because the Fed has built a shrine to data dependence

and unless you want to tear that down, the two important data

points (the consumer price index and the strong nonfarm payrolls

report) that we got make a tough case for cutting at all,"

Hoffmann noted.

He pointed out that the labor market "does not feel like

it's falling off a cliff," and it's "certainly too soon to

declare victory on inflation."

The fed funds futures have priced in a 91% chance of a

25-bps easing next month, with a 9% probability that the Fed

will keep the policy rate in the 4.75%-5.0% target range,

according to LSEG calculations.

The futures market also showed about 48 bps of easing this

year, down from more than 50 bps early this week. It priced in

about 102 bps of Fed cuts in 2025, a steep decline from the

roughly 200 bps of reductions estimated prior to last Friday's

blowout U.S. nonfarm payrolls report.

In afternoon trading, the yield on benchmark U.S. 10-year

notes was off 2.1 bps from late Thursday at 4.073%.

It rose for a fourth-straight week, with gains of 9.6 bps.

A separate survey from the University of Michigan on Friday

showed its preliminary consumer sentiment index slipped to 68.9

in October from a final reading of 70.1 in September. Economists

had forecast a preliminary reading of 70.8.

Consumers' 12-month inflation expectations rose to 2.9% from

2.7% last month.

U.S. yield stayed lower after the consumer sentiment data

The U.S. 30-year bond yield was flat at 4.386%

, hitting a 10-week high earlier in the session of

4.421% and rising for eight straight days. For the week, it

gained 12 bps.

On the short end of the curve, the two-year note

yield, which is typically sensitive to Fed policy expectations,

fell 5.4 bps to 3.945%, on track for its biggest daily fall

since Sept. 27. On the week, the two-year yield has dropped

about 6.7 bps.

The yield curve has bull-steepened, with the spread between

U.S. two- and 10-year yield at 13.2 bps. In a

bull-steepening, short-term rates fall more sharply than those

on the long end, suggesting more rate cuts are expected.