US Treasury prices gained on Friday on growing doubts about the ability of lawmakers in Washington to pass healthcare reform, which boosted demand for safe-haven debt. US Republican lawmakers struggling to overcome differences over new healthcare legislation confronted a stark choice after President Donald Trump delivered an ultimatum: pass the bill on Friday or keep Obamacare in place.
Delays in passing domestic legislation, including healthcare, are seen as likely to push back any new fiscal stimulus, which investors had anticipated would boost growth and possibly spur a quicker pace of interest-rate hikes by the US Federal Reserve. "This is being seen as a good litmus test of the rest of Trump's agenda," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
Benchmark 10-year notes gained 4/32 in price to yield 2.40 percent, down from 2.42 percent on Thursday. The 10-year yields fell to 2.375 percent on Wednesday, their lowest since February 28. They are down from a three-month high of 2.63 percent on March 14. Yields have fallen since the Fed last week raised interest rates ,as expected, but took a more dovish tone on future hikes than some investors had anticipated.
St. Louis Federal Reserve Bank President James Bullard said on Friday that the US central bank should begin allowing its massive portfolio to run off, even as it keeps its target policy rate low to keep inflation and unemployment at current levels. Tom Tucci, head of Treasuries trading at CIBC in New York, said, "I don't think people are listening to what the Fed is saying, there is more and more noise about balance sheet reduction, which I think will have an impact on the market over time." New York Fed President William Dudley said on Friday that the Fed's delicate interest-rate hikes are necessary given that the economy is stable and any further fall in unemployment could lead to an inflation run-up.
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