U.S. Government Bonds Fall as Fed Meeting Begins
March 19 2019 - 4:32PM
Dow Jones News
By Daniel Kruger
U.S. government-bond prices fell Tuesday as investors speculated
that the Federal Reserve would continue to emphasize a patient
approach to adjusting interest-rate policy as it starts its two-day
meeting in Washington.
The yield on the benchmark U.S. government 10-year Treasury note
rose for a second consecutive session, settled at 2.614% from
2.605% Monday. Yields rise as bond prices fall.
Government-bond yields remained within 0.1 percentage point of
their lows of the year as investors continued to bet that the Fed's
next move is more likely to be a reduction of interest rates than
an increase.
After a surge in market volatility and concerns that higher
interest rates could hasten a recession, Fed officials in January
stepped back from their own forecasts at their December meeting
that they would raise interest rates two times in 2019 and
emphasized that they would be more responsive to economic data,
including financial conditions, in setting rates this year.
Yields declined from their session highs after the Commerce
Department said Tuesday that orders for U.S. manufactured goods
rose 0.1% in January. That matched the prediction of economists
surveyed by The Wall Street Journal. However, excluding
transportation, orders slid 0.2%, the third consecutive monthly
decline.
Fed officials have indicated that they see little reason to
raise interest rates as long as inflation doesn't present a threat
to the economy. Inflation is a threat to the value of government
bonds because it erodes the future purchasing power of their fixed
interest and principal payments.
"We think the bond market is sending a pretty accurate signal
about expectations for slow inflation and growth," said Bob Browne,
chief investment officer for Northern Trust. In setting rates this
year, "the Fed needs to think about what the economy will look like
in 2020," he said.
Fed funds futures, which investors use to speculate on the
direction of central-bank policy, showed that investors see a 25%
probability that officials will cut interest rates this year,
compared with a 75% chance that they stay steady, according to CME
Group data. A month ago, the odds of a cut were 8% compared with 2%
odds of an increase and 90% chances the Fed would stay on hold.
Write to Daniel Kruger at Daniel.Kruger@wsj.com
(END) Dow Jones Newswires
March 19, 2019 16:17 ET (20:17 GMT)
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