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BOND REPORT : Treasury Yields Continue Lower After Fed Fails To Signal Quicker Pace Of Rate Hikes

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03/20/2017 | 09:22pm CET

By Joseph Adinolfi, MarketWatch

Treasury yields declined Monday as the Federal Reserve's unwillingness last week to signal a more aggressive pace of interest-rate hikes helped support the battered Treasury market.

The yield on the 10-year note shed three basis points to 2.472%, its lowest end-of-day level in three weeks, while the yield on the two-year note , typically the most sensitive to interest-rate expectations, declined two basis points to 1.296%. The yield on the 30-year bond shed 2.4 basis points to 3.088%.

Yields, which fall as prices rise, finished lower last week after the Fed raised its benchmark interest-rate target by a quarter of a percentage point to a range of between 75 basis points and 1% -- its second such hike over the past three months.

Typically, such a move would be expected to push yields higher. But the central bank left its projections for the pace of interest-rate hikes over the coming year essentially unchanged, disappointing some investors who had expected the central bank to signal that future hikes would happen more swiftly than previously believed.

"I think there was an expectation that the Fed would become extremely hawkish, and that just wasn't justified," said Gennadiy Goldberg, interest-rate strategist at TD Securities.

Chicago Fed President Charles Evans said he would support raising interest rates four times in 2017 if there's a substantial pickup in inflation . But his remarks had little impact on the market despite his place on the Fed's interest-rate-setting committee.

Meanwhile, his colleague, Minneapolis Fed President Neel Kashkari, explained his rationale behind voting to leave interest rates on hold last week during an interview with CNBC (http://www.cnbc.com/2017/03/20/feds-kashkari-says-his-vote-against-rate-hike-is-based-on-lack-of-inflation.html) on Monday morning, saying he opposed the hike because inflation is lagging. Kashkari had previously released a statement saying he was the only Fed policy maker to vote against raising interest rates at the central bank's meeting last week.

The latest reading from the University of Michigan consumer confidence survey , released Friday, also helped rein in yields by showing that long-term inflation expectations had declined.

Meanwhile, FBI Director James Comey and National Security Agency Director Michael Rogers both testified before the House Intelligence Committee on Monday, but their comments appeared to have little impact on the bond market.

Confirmation hearings for Neil Gorsuch, President Donald Trump's nominee to succeed Antonin Scalia on the Supreme Court, also began on Monday.

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