Treasury yields rise

Benchmark US Treasury yields rose after the Federal Reserve kept interest rates unchanged and downplayed weak first-quarter economic growth, keeping a rate increase in June on the table. In a bullish statement following the end of a two-day meeting, the central bank emphasised the strength of the labour market and said inflation has been "running close" to the Fed's target.
"The Fed doesn't need the economy to excel from where it is now in order to raise rates further," said Lou Brien, a market strategist at DRW Trading in Chicago. "They want to move the rate higher than where it is given the current conditions, and I don't think they want to take that anticipation off the table just because we've had some slowing data." Benchmark 10-year notes fell 4/32 in price to yield 2.31 percent, up from 2.30 percent on Tuesday.
Futures traders are pricing in a 75 percent chance of a June rate increase, up from 71 percent before the statement, according to the CME Group's FedWatch Tool. US 30-year bond yields fell and the yield curve flattened after the Treasury Department said it was studying the issuance of an ultra-long bond but did not commit to one. That came after Treasury Secretary Steven Mnuchin said on Monday that his department was looking into the issuance of bonds with maturities beyond 30 years.
"I think a lot of people were expecting the Treasury to commit to an ultra-long issue," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York. The Treasury Borrowing Advisory Committee (TBAC), a group of banks and investors that advises the Treasury on debt issuance, also expressed reservations about demand for longer-dated bonds. In a presentation released on Wednesday, the TBAC said it does "not see evidence of strong or sustainable demand for maturities beyond 30 years."
Thirty-year bonds gained 15/32 in price to yield 2.96 percent, down from 2.98 percent on Tuesday. The yield curve between 5-year notes and 30-year bonds flattened to 111 basis points, from 117 basis points on Tuesday. The Treasury also kept the size of its 10-year and 30-year bond sales planned for next week unchanged, after some investors had expected these issues to be increased. The Treasury said it will sell $62 billion in coupon debt next week, including $24 billion in 3-year notes, $23 billion in 10-year notes and $15 billion in 30-year bonds.