By Sam Goldfarb
U.S. government bond prices surged higher Wednesday, pushing yields to new multiyear lows, after the Federal Reserve held their benchmark interest rate steady but opened the door to a near-term interest rate cut.
Yields, which fall when bond prices rise, slid immediately after the Fed released its policy statement and continued declining as Fed Chairman Jerome Powell spoke at a press conference.
Mr. Powell did little to alter the impression that the Fed was prepared to cut interest rates for the first time in more than a decade. Many investors had anticipated those signals, but they still hadn't fully been reflected in bond prices.
Interest-rate forecasts released Wednesday showed eight of 17 officials project the Fed will cut the benchmark federal-funds rate this year, with seven of those officials seeing two quarter-point reductions.
Fed officials in their policy statement made note of both increased uncertainty about the economic outlook and muted inflation pressures, while saying they would "act as appropriate to sustain the expansion."
Such language helped push the yield on the benchmark 10-year U.S. Treasury note to 2.023%, its lowest close since Nov. 8, 2016 -- the day of the last presidential election -- from 2.060% Tuesday.
Yields on shorter-term bonds, which are particularly sensitive to changes in monetary policy, logged bigger declines, with the two-year yield dropping nearly 0.11 percentage point to 1.758%, its lowest close since Nov. 2017.
"Half the committee is ready to pull the trigger on a rate cut at some point this year," said Thomas Simons, senior vice president and money-market economist in the Fixed Income Group at Jefferies LLC. "Powell's tone in his press conference to me suggested the threshold for a rate cut is not particularly far away."
Already this year, investors had been scooping up Treasurys largely in response to slowing global growth, soft inflation data and ongoing trade tensions, which have clouded the economic outlook.
Previewing Mr. Powell's comments, European Central Bank President Mario Draghi had signaled Tuesday that the ECB could start rolling out new stimulus measures, including a reduction to already negative interest rates.
Despite the momentum toward a rate cut, some analysts cautioned that the Fed might keep rates steady if the U.S. and China make progress on trade talks on the sidelines of next week's Group of 20 summit in Japan. Such a scenario in turn could push Treasury yields higher.
The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, was recently down 0.4% at 90.40.
Write to Sam Goldfarb at email@example.com
(END) Dow Jones Newswires
June 19, 2019 17:45 ET (21:45 GMT)
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