US Treasuries prices fell on Wednesday as rising stocks reduced demand for lower risk government bonds, and as Federal Reserve Chair Janet Yellen expressed optimism on the economy. Better-then-expected growth in China, the world's largest economy, and a rally in Yahoo shares helped stocks rise for a third straight session.
US economic reports showed signs of overall strength. The data came as Yellen stressed that employment and inflation will be key to the still distant decision over when to raise interest rates. "The main message continues to be that the Fed remains committed to providing a helping hand to the economic recovery, while becoming more confident in the ability of the recovery to finally achieve lift-off later this year," said Millan Mulraine, deputy chief economist at TD Securities in New York.
More Wall Street economists believe the US central bank will raise interest rates in the first half of 2015, as evidence builds that the US economy has regained some momentum lost during an unusually rough winter, a Reuters survey showed earlier this month. Five-year notes and seven-year notes, which are the most sensitive to interest rate policy, were the worst performers after Yellen's comments. Five-year notes were last down 4/32 in price to yield 1.65 percent, up from 1.62 percent late on Tuesday. Seven-year notes fell 5/32 in price to yield 2.21 percent, up from 2.18 percent.
Benchmark 10-year notes dropped 2/32 in price to yield 2.64 percent, down from 2.67 percent earlier on Wednesday. The yields fell to one-and-a-half month lows of 2.60 percent on Tuesday, as concerns about escalating tension in Ukraine sparked safety buying and a weak New York manufacturing survey raised fears over the strength of the US recovery. Data on Wednesday was mixed, but was overall seen as more bullish than bearish for the economy.
"Industrial production and capacity utilisation were both stronger than expected, probably trumping the housing starts number, which was a little bit weaker," said Lou Brien, a market strategist at DRW Trading in Chicago. The Fed bought $1.02 billion in bonds due from 2036 to 2044 on Wednesday as part of its ongoing purchase program. The bond market will close early on Thursday and be closed all day on Friday for the Good Friday holiday.
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