NEW YORK: US Treasury yields declined on Thursday with benchmark yields hitting near two-week lows on revived bets the Federal Reserve would raise interest rates slowly due to weak economic growth and inflation stuck below its 2-percent goal.
The US central bank on Wednesday held its target range on short-term rates unchanged at 0.25 percent to 0.50 percent, leaving the door open for a possible rate increase in December.
Fed policymakers also reduced their expected average number of annual rate increases to two from three for 2017 to 2018.
Traders' perception that a December rate hike is far from a sure thing, and that the Fed is on a slow path of rate normalization, led them to favor longer-dated Treasuries over shorter-dated issues. The move pushed the yield curve to its flattest level in more than a week.
"If you think they're going to go, the curve will flatten," said Thomas Roth, head of US Treasury trading at Mitsubishi UFJ Securities USA in New York.
Federal funds futures implied traders saw about a 57-percent chance the Fed would raise rates at its Dec. 13-14 meeting, compared with 58 percent on Wednesday, according to CME Group's FedWatch program.
In early trading, benchmark 10-year Treasury notes rose 12/32 in price for a yield of 1.627 percent, down 4 basis points from Wednesday.
The yield gap between five-year and 30-year Treasuries contracted to 118 basis points, about 1 basis point flatter than Wednesday.
The yield curve steepened from its initial levels after data showed domestic jobless claims unexpectedly fell to a two-month low in the week ended Sept. 17, suggested underlying strength in the labor market.
On the supply front, the US Treasury Department will sell $11 billion worth of 10-year Treasury Inflation Protected Securities at 1 p.m. (1700 GMT).
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