Treasury debt prices soar

US Treasury debt prices rose on Monday, rebounding from an aggressive selloff last week, as investors tried to get back to neutral positions ahead of this week's two-day Federal Open Market Committee meeting. Long-term yields, which move inversely to prices, fell for the first time in four days. Yields were also pressured by the drop in oil prices, analysts said.
Benchmark 10-year yields hit a five-week high on Friday, capping broad gains on the back of the European Central Bank's suite of stimulus measures to revive a slumping euro zone economy. The ECB moves boosted riskier assets last week such as stocks and weighed on safe havens such as US Treasuries. That rise in yields is now being unwound.
Kim Rupert, managing director of global fixed income at Action Economics in San Francisco, said the market may be overpricing the prospect of interest rate hikes by the Fed given a strong US jobs report for February.
"The market got a little bit carried away with pricing in rate hikes," Rupert said. "And so we're seeing a bit of calm at this point."
Investors expect the Federal Reserve to hold interest rates steady on Wednesday, and are focusing instead on the FOMC statement, which could lower the outlook for the number of US rate hikes this year.
Still, since the January meeting in which the Fed took note of the recent slowing of the U.S economy, the decline in inflation, and external factors including China and oil prices, things have stabilised a little bit.
"We don't anticipate much of a shift in terms of sentiment frankly, if anything we've seen some stabilisation in risk assets in the inter-meeting period which offsets the tighter financial conditions that have been a concern," said CRT Capital in a research note on Monday.
"This points to a less dovish statement, but one that needs to be dutifully cautious on the outlook to justify not tightening now."
Action Economics' Rupert believes the Fed will hike two more times this year in June and September, adding that the economy is behaving pretty much as expected with inflation picking up toward the two percent goal. The two-percent inflation target is more like a medium-term outlook, she added.
In late trading, benchmark 10-year note rose 4/32 in price to yield 1.960 percent from 1.993 percent on Friday.
The 30-year bond was last up 10/32 in price to yield 2.730 percent, down from 2.762 percent late on Friday.