US Treasury yields fell on Wednesday as investors reduced expectations that the Federal Reserve is likely to adopt a faster path in raising interest rates and any new fiscal stimulus is seen as unlikely in the near-term. President Donald Trump and Republican congressional leaders appeared on Wednesday to be losing the battle to get enough support in the House of Representatives to pass their Obamacare rollback bill.
Delays in passing domestic reforms including healthcare are seen as likely to push back any new fiscal stimulus, which investors had anticipated would boost growth and possibly lead to faster than previously expected rate increases.
"People are losing confidence in a swift moving set of congressional reform," said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York.
Benchmark 10-year notes gained 11/32 in price to yield 2.40 percent, down from 2.43 percent on Tuesday.
The 10-year yields earlier dropped to 2.37 percent, the lowest since February 28. They have fallen from 2.63 percent on March 14. "The bond market had repriced higher in terms of yields looking at what the Fed reaction function might be given that we might have fiscal stimulus down the road," said Chirag Mirani, head of US rates strategy at UBS. Now, "the market is going through a realization that this may take some time or that it may not be the version it was expecting," Mirani said.
Oil prices also dipped on Wednesday as rising crude stocks in the United States underscored an ongoing global fuel supply overhang despite an Opec-led effort to cut output. That has also reduced inflation expectations, which is also seen as delaying further Fed tightening. "Oil prices have been declining and that's helped push market-based inflation expectations lower," said Mirani. Speeches by Fed officials are in focus this week for any new indications about future interest rate policy. Fed Chair Janet Yellen is due to speak at a community development conference on Thursday. Durable goods data and manufacturing data on Friday will also be a focus for investors.