Treasuries outlook: US bonds market rebounds as buying re-emerges
US Treasuries yields held steady or fell on Friday on renewed appetite for bonds as a two-day scramble for stocks and other risky assets slowed. Longer-dated yields declined from one-week highs as bargain-minded traders reckoned that two days of selling and exits from flattener trades, or bets that shorter-term rates would rise faster than longer-term rates, were overdone.
Copyright Reuters, 2014
On Wednesday, the Federal Reserve said it would be "patient" on raising benchmark US interest rates, depending on domestic growth and inflation.
In response to the somewhat dovish signal, the Standard & Poor's 500 index gained 4.5 percent in two days. It also bolstered junk bonds and stabilised oil prices that had fallen to 5-1/2-year lows earlier this week.
"The market overshot. It is just stabilising after two days of sitting near their recent highs," said George Goncalves, head of US interest rate strategy at Nomura Securities International in New York.
In the lightest trading day since November 28, the 10-year Treasuries yield slipped 3 basis points to 2.171 percent, while the 30-year yield decreased 4.6 basis points to 2.768 percent.
The rebound in the bond market was mitigated by further strength in the stock market with the S&P 500 rising 0.7 percent on Friday.
Three Fed officials on Friday gave clues on the thinking inside the Fed as it considers the timing on a rate lift-off.
San Francisco Fed chief John Williams told Bloomberg Radio it seems "reasonable" for the Fed to raise rates in mid-2015.
Minneapolis Fed President Narayana Kocherlakota said rate hikes in 2015 would create "unacceptable" downside risks to US inflation.
Inflation has fallen short of the Fed's 2 percent goal. The recent slide in oil prices has stoked the view the Fed might postpone normalising rate policy until inflation accelerates.
The over 45 percent drop in US oil futures since their peak in June has fed worries it will snowball into a broad US price decline, forcing the chances of a Fed rate hike back until late 2015 at the earliest.
Amid worries about disinflation, Richmond Fed President Jeffrey Lacker echoed Fed Chair Janet Yellen's view at her press conference two days earlier that the drop in energy prices will boost US consumer spending.