NEW YORK: US Treasury debt yields fell for the fourth straight session on Thursday, a day after the Federal Reserve lowered its expectations for interest rate hikes this year and expressed concerns about the state of global financial markets.
Benchmark 10-year note yields fell to one-week lows, while U.S. two-year notes, the maturity most sensitive to Fed rate expectations, slid to a two-week trough.
The spread in the yield between U.S. five-year and 30-year notes increased by about 126 basis points on Thursday, the highest in two weeks. The steeper yield curve suggested that the market has all but priced out any near-term rate hike.
"The market was caught off-guard by the (Fed's) very dovish tone, so we're getting this bull steepening," said interest rate strategist Gennadiy Goldberg of TD Securities in New York.
The rate futures market now shows a 43 percent chance that the Fed will raise rates in June for the first time this year, slipping from 51 percent before the central bank's Wednesday statement, according to CME Group's FedWatch program.
The likelihood of a second increase by December was seen at 73 percent, down from about 80 percent before the Fed announcement.
A Reuters poll of economists also showed prospects for June and December hikes.
At the December meeting of the Federal Open Market Committee, the central bank projections showed at least four rate increases for 2016.
"Even if we are right about the markets not fully pricing out the Fed, traders will be less willing to price in more than one hike this year," said George Goncalves, head of U.S. rates strategy at Nomura in New York.
"The market will most likely price in one hike at a time and will not price in another full hike until the Fed shows that it means business and raises rates at least a second time."
In late morning trading, the benchmark 10-year note was up 10/32 in price to yield 1.901 percent, down from 1.911 percent on Wednesday and 2.0 percent going into the Fed announcement.
Those yields edged higher after data showed the Philadelphia Federal Reserve's regional business index beat estimates by more than 10 points.
The 30-year bond was last up more than a point in price, while yields fell to 2.676 percent from 2.710 percent late on Wednesday.
U.S. two-year notes were unchanged in price, with yields dipping to 0.863 percent from 0.867 percent.
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