NEW YORK: US Treasury debt prices rose on Thursday, pushing down yields ahead of a key Federal Reserve meeting next week where investors expect Chairman Ben Bernanke to offer a more dovish tone on US interest rates than some other Fed members have done in recent weeks.
Treasuries were boosted in early trading by data showing that factory activity in the US Mid-Atlantic braked sharply in April and the number of Americans newly claiming jobless aid remained high, adding to recent concerns the economy is slowing.
US government debt yields have declined over the past two weeks as investors anticipate that slowing growth and pressure to cut government spending will require the Federal Reserve to hold rates lower for longer than some had expected.
Benchmark ten-year Treasury note yields dipped to 3.40 percent from 3.41 percent late on Wednesday. They have dropped from around 3.60 percent on April 11.
"Two to three weeks ago, the market was thinking that the Fed might be starting to undo their accommodative stance sometime over the next six months," said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York.
"That's going to be pushed back now ... people are more in tune for first quarter, second quarter of next year," he said.
The Fed is expected to renew its commitment to complete its $600 billion in government debt purchases at next week's meeting, though investors will be keenly watching for signs of whether it also plans to keep investing proceeds from maturing mortgage-backed debt into government bonds.
Traders will also be watching to see if the Fed gives any indication over when it may begin to sell its $1.375 trillion in Treasuries holdings.
"We view the decision on the reinvestment policy ... as the main point of contention at the April meeting," Barclays Capital economist Michael Gapen said in a report. "We believe the FOMC will avoid passive tightening by keeping the size of the balance sheet constant at end-June levels."
The Fed is seen increasingly divided between more hawkish members who view a more aggressive stance as necessary to hold off inflation, and doves, including Bernanke, who fear raising rates too fast will hurt growth.
Short- and intermediate-dated notes could see some volatility next week as the Treasury plans to sell $99 billion in new two-year, five-year and 10-year notes.
The two-year Treasuries may face the toughest auction as the notes yields, which are the most vulnerable to interest rate risk, are also trading near the bottom of their recent range, said Bank of Nova Scotia's Comiskey.
Two-year note yields were unchanged on Thursday at 0.67 percent, near their lowest yields in around month, and down from around 0.85 percent on April 7.
The Treasury on Thursday saw solid demand in a $14 billion auction of five-year Treasury Inflation-Protected Securities, which sold at a high yield of negative 0.18 percent.
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