US Treasury yields fell on Friday on data pointing to slowing economic growth, raising expectations that the Federal Reserve will need to wait longer to raise interest rates. US consumer sentiment fell more than expected in May and economists also cut their forecasts for US economic growth in the second quarter and full year and trimmed expectations for US labor market gains.
US industrial production also fell for a fifth straight month in April, weighed down by declines in mining and utilities output, pointing to a lack of momentum in the economy at the start of the second quarter. "The market is getting more concerned that the economy weakened through the first quarter into the second quarter, and that pushes the Fed back further and further and people get more comfortable jumping back into Treasuries here," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.
Slowing economic growth in recent months has led many investors to push back their expectations of when the Fed will raise rates to September or December, from June previously. Treasury yields have jumped in the past three weeks in line with a dramatic sell-off in German government debt, and some investors are now taking advantage of the higher yields. European government bonds stabilized on Friday, helping market sentiment. Benchmark 10-year notes were last up in 27/32 price to yield 2.14 percent, down from 2.24 percent late on Thursday.
Consumer price inflation data released next Friday will be a major focus for the market in the near term. Low inflation is seen as potentially complicating the ability of the Fed to begin raising interest rates, even as the jobs market improves. The Fed will also release minutes from its April meeting on Wednesday, which will be scrutinized for any new signs on when the US central bank may make its first rate hike in nearly a decade. Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle, doesn't expect much new information in the Fed minutes. "We've had enough Fed-speak in the interim that we know that the Fed wants to raise rates this year; right now it just comes down to the timing," she said.
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