NEW YORK: US Treasury yields fell on Tuesday after briefly spiking on higher-than-expected consumer price data as investors kept grappling with the likelihood that the Federal Reserve is unlikely to increase interest rates until later this year.
Treasuries have gained since last week's Fed statement, which was more dovish than expected and after the US central bank cut its inflation outlook and growth forecast.
A majority of Wall Street's top banks now see the Fed holding off until at least September before raising interest rates for the first time since 2006.
"There's very little inflation in the system and will continue to be going forward," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets in New York. "The world is gripped with deflation."
The Labor Department said on Tuesday that its Consumer Price Index increased 0.2 percent last month after falling 0.7 percent in January. That ended three straight months of declines in the
index.
British data earlier on Tuesday showed inflation completely disappeared, hitting zero for the first time on record.
Benchmark 10-year notes were last up 3/32 in price, with yields falling to 1.90 percent. They rose as high as 1.918 percent immediately after the US inflation data was released before falling back to trade little changed.
Concerns that inflation will remain low may help the US government sell new short- and intermediate-dated supplies this week, beginning with a $26 billion sale of two-year notes later on Tuesday.
"I think the auctions will go well this week because the FOMC did such a complete twist to the marketplace last week," said di Galoma. "People feel comfortable buying that market rather than selling the market at this point."
The Treasury will sell $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday. It will also sell $13 billion in reopened two-year floating rate notes on Wednesday.
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