US Treasury yields edged lower on Wednesday, with prices trading in narrow ranges, on investors' view that a Federal Reserve rate hike later this month was unlikely after a round of mostly weak economic data. The drop in yields, which move inversely to prices, was across the board, with US 10-, two-, five- and seven-year notes earlier dropping to three-week lows. Yields on 30-year bonds slid to four-week troughs.
A softer-than-forecast US non-farm payrolls report for August and a modest expansion in the US services sector last month prompted a round of US Treasury debt buying as market participants started to price out a rate hike. Fed funds futures prices late on Wednesday indicated an 18 percent chance of a rate hike at the September Fed meeting, from 15 percent on Tuesday and 40 percent before last Friday's August US jobs report, according to the CME's FedWatch. The perceived likelihood of a December rate increase rose to 52.4 percent, versus 50.8 percent the day before. "I think September is off the table. We had risen as high as a 40 percent chance after Jackson Hole (central bank meeting) and now that has been cut in half," said Mike Wallace, global market strategist, at Action Economics in San Francisco.
"It's a pretty safe bet that given the Fed's data dependency, the risk would be surprising the market with a rate hike given the weaker data we have seen." Mixed comments from San Francisco Fed President John Williams overnight did not alter expectations for the Federal Open Market Committee meeting on September 20-21. In late New York trading, benchmark 10-year Treasury notes were up 2/32 in price to yield 1.534 percent, from 1.543 percent on Tuesday. Yields fell as low as 1.519 percent, a three-week trough. The 30-year Treasury bond rose 7/32 in price to yield 2.229 percent, from 2.240 percent late Tuesday. Earlier, 30-year yields slid to a four-week low of 2.206 percent. Prices of two-year notes were flat with a yield of 0.738 percent.