US Treasury prices rose on Thursday as markets rebounded from Wednesday's sell-off and priced down the odds of a Federal Reserve interest rate increase after even-handed remarks from New York Fed President William Dudley. US Treasury yields, which move in the opposite direction of prices, rose to their highest in about two months for shorter-dated maturities after the Fed's April 26-27 meeting minutes were released late on Wednesday. In the minutes, Fed officials said they were open to a rate hike in June if the economy continues to improve.
Prices moved higher on Thursday after markets got limited commentary from the Fed's Stanley Fischer and non-committal remarks from Dudley. "The market was rallying even prior to Dudley and I don't think he said much new today but he seems to be tempering the hawkish sentiment that we saw yesterday after the minutes," said Subadra Rajappa, head of US rates strategy at Societe Generale in New York.
"I think Dudley was very non-committal. I didn't feel like I got anything new out of him." Dudley is considered by many investors to be among the most important voices on the Fed's Federal Open Market Committee, which sets US overnight interest rates. Fed funds futures rates showed that following the release of the minutes on Wednesday, investors doubled the likelihood of a rate increase from the Fed in June, to 34 percent from 17 percent, according to CME group's FedWatch tool. The likelihood
fell to 26 percent after Dudley's speech on Thursday. A rate increase would be negative for Treasuries because it would drive up overall interest rates, lowering the relative value of already-issued government debt. The move higher in prices was also bolstered by the comparable attractiveness of US government debt, said Bill Northey, chief investment officer of the Private Client group at US Bank.
"You've got global capital flows where we're seeing government bonds across the globe at such a low level of yields at present that there is a natural bid to our Treasury market," Northey said. "So every time we have a spike in yields you're going to have a natural bid to push yields back lower." Five world central banks, including the European Central Bank and Bank of Japan, currently have negative interest rates. Japanese and German 10-year government bonds yield negative-0.073 percent and 0.169 percent respectively. Benchmark US 10-year notes rose 11/32 in price to yield 1.85 percent.