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US Treasury prices fell on Wednesday, with benchmark yields rising to their highest in 1-1/2 weeks, as gains in US stocks and encouraging data on producer prices and factory production reduced the appeal of low-yielding bonds. Still the minutes for the Federal Reserve's January 26-27 meeting reminded investors the current market turmoil was severe enough to cause policy-makers to reconsider their planned path on rate increases.
Competing corporate bond supply added to the selling pressure on Treasuries. Companies raised $22 billion in the high-grade bond market on Tuesday, according to IFR, a unit of Thomson Reuters. Major US equity indexes rose for a third straight session, propelled by higher crude prices, on hopes that major oil producers will reach an agreement to freeze output to address the global oil glut.
"The oil market's reversal higher has caused the tone to change, reviving appetite for risky assets and reducing demand for bonds," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York. Benchmark 10-year Treasury notes were down 11/32 in price to yield 1.816 percent, up 4 basis points from Tuesday. The 30-year bond last traded 25/32 lower in price, yielding 2.680 percent, up 4 basis points on the day.
Last week, the 10-year yield fell to 1.53 percent, the lowest since September 2012, while the 30-year bond yield dropped to 2.38 percent, the lowest in a year. US yields retreated briefly shortly after the Fed minutes before bouncing back near their session highs as the minutes contained no major surprises. "They acknowledged the downside risks. They are worried about oil, China and the dollar," said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research in New York. Amid the Fed's concerns, domestic data suggested the US economic expansion remains intact.

Copyright Reuters, 2016

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