Bond prices rise on potential for dovish Fed

NEW YORK: US Treasuries prices rose on Monday on speculation that the Federal Reserve could take a more cautious tone at its policy meeting this week given the recent surge in the U.S. dollar and weakness in U.S. economic data.

The policy-setting Federal Open Market Committee meets on Tuesday and Wednesday and has been widely expected to drop the word "patient" from its formal statement on the timing of its first interest rate increase since 2006.

Analysts said the rally in the dollar, which has sent the greenback up about 24 percent against a basket of currencies since May, could lead the Fed to reconsider removing the term given the negative impact of the stronger currency on economic competitiveness and inflation in the United States.

"Assuming (inflation) is one of the things the Fed is looking at, it's going to be very difficult to talk hikes," said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago.

Weaker-than-expected economic data on U.S. manufacturing, industrial output, and housing on Monday bolstered the view that the Fed could maintain an accommodative stance on monetary policy.

"If the Fed is truly data dependent, this data doesn't give them any leeway to go in June. It basically closes that door," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York, in reference to the potential for the Fed to hike rates in June.

Benchmark 10-year U.S. Treasury notes were last up 10/32 in price to yield 2.08 percent, from a yield of 2.11 percent late Friday. U.S. 30-year Treasury bonds were last up 23/32 in price to yield 2.66 percent, from a yield of 2.69 percent late Friday.

Shorter-dated Treasury prices, which are most vulnerable to Fed rate shifts, rose slightly before paring gains. U.S. two-year Treasury notes were last mostly flat in price to yield 0.641 percent after earlier hitting 0.637 percent, their lowest level since March 6.

On Wall Street, U.S. stocks opened higher and the benchmark S&P 500 rebounded after three weeks of losses, rising 0.87 percent.