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REFILE-TREASURIES-U.S. yields decline on soft producer price data

By Ross Kerber

(Refiles with correct name of firm in fifth paragraph, FHN Financial not FTN Financial) By Ross Kerber BOSTON, Jan 15 (Reuters) - U.S. Treasury yields declined on Wednesday as investors repositioned around new data showing producer prices barely rose in December. The benchmark 10-year yield was down 3.5 basis points in morning trading to 1.783%. The U.S. Labor Department said on Wednesday its producer price index for final demand ticked up 0.1% last month after being unchanged in November. Economists polled by Reuters had forecast the PPI climbing 0.2% in December, making Wednesday's report the latest indication of tame inflation pressures that could allow the Federal Reserve to keep interest rates unchanged this year. Investors saw the data and similarly soft reports from Europe as a signal to reposition investments that had been pegged to a growing sense of economic optimism, said Jim Vogel, FHN Financial interest rate strategist. "You can only get ahead of global developments so far," he said. Caution about a pending trade deal between the United States and China also helped drive down yields, he said, such as caution that a Phase 2 stage of agreement may not be reached until 2021. In Wednesday's daily price action, euro zone bond yields fell from two-week highs after U.S. Treasury Secretary Steven Mnuchin said tariffs would remain in place following the signing of an initial trade deal, injecting some caution into markets. U.S. stocks were set to open lower on Wednesday, as investors also considered the latest earnings reports from big U.S. banks. Bank of America Corp followed JPMorgan Chase & Co and Citigroup Inc in reporting better-than-expected results on loan growth and strength in bond trading, while Goldman Sachs Group Inc missed due to weakness in its investment banking business. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 2 basis points at 1.5577% in morning trading. January 15 Wednesday 9:19AM New York / 1419 GMT Price Current Net Yield % Change (bps) Three-month bills 1.5375 1.5692 -0.003 Six-month bills 1.535 1.5728 0.003 Two-year note 100-33/256 1.5577 -0.020 Three-year note 99-210/256 1.5616 -0.026 Five-year note 100-184/256 1.5985 -0.028 Seven-year note 100-72/256 1.7069 -0.031 10-year note 99-180/256 1.783 -0.035 30-year bond 103 2.2366 -0.039 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 6.75 1.25 spread U.S. 3-year dollar swap 3.25 1.25 spread U.S. 5-year dollar swap 0.75 1.25 spread U.S. 10-year dollar swap -4.00 0.75 spread U.S. 30-year dollar swap -30.75 0.75 spread (Reporting by Ross Kerber in Boston; editing by Jonathan Oatis)