Prices rise on foreign demand, hold gains after spending data

NEW YORK: US Treasury prices rose on Monday as investors bought Treasuries following a market selloff Friday that took yields on benchmark 10-year notes to their highest since Britain's surprise vote to exit the European Union late in June.

Comments from Federal Reserve Chair Janet Yellen and Vice Chair Stanley Fischer on Friday, perceived as raising the likelihood of the Fed boosting short-term interest rates this year, spurred selling in Treasuries and provided an opening for overseas investors seeking US government debt, analysts said.

Yellen said at a three-day gathering of world central bankers in Jackson Hole, Wyoming, that the case for raising rates had strengthened in recent months. In a later television interview, Fischer said Yellen's remarks were consistent with the possibility of two rate hikes this year.

Their remarks were followed by a speech from Bank of Japan Governor Haruhiko Kuroda in Jackson Hole who said the BOJ stood ready to approve more quantitative easing or lower negative interest rates "without hesitation" if conditions in Japan continued to miss the bank's targets.

"The main reason we're seeing yields in the US Treasury market as low as they are at this point in time is because of the overseas demand," said Lisa Hornby, US fixed income portfolio manager at Schroders. "We're seeing consumers buying most of the US fixed-income products."

Benchmark 10-year US Treasury prices rose 10/32 in price to yield 1.60 percent. Ten-year Japanese government bonds, by comparison, yield -0.065 percent.

Treasuries maintained their price gains after US consumption and personal income data matched economists' expectations for July. Consumer spending, which accounts for more than two-thirds of US economic activity, increased for a fourth straight month in July and was revised higher for June.

While that was supportive of rising inflation that could put point towards a Fed rate hike for the first time since December, the data did not exceed expectations, meaning it should have been priced in, Hornby said.

"We're seeing inflation data certainly move higher over the last several months and I expect it continues to do that," she said. "But we're still below the Fed's target, which gives them reason to push back against aggressive rate hiking."