NEW YORK: US Treasuries prices rallied on Tuesday, erasing early losses after testimony from Federal Reserve Chair Janet Yellen kept the door open for a later than midyear interest rate hike and a two-year note auction met with strong demand.
Yields on 10-year and 30-year Treasuries hit more than one-week lows after Yellen told a U.S. congressional committee that the Fed was preparing to consider interest rate hikes "on a meeting-by-meeting basis." This marks a subtle change of emphasis in how the Fed has been speaking about its plans for the first rate increase since 2006.
In remarks to the Senate Banking Committee, Yellen described how the Fed's rate-setting policy committee would probably proceed in coming months: first by removing the word "patient" in describing its approach to rate hikes, then entering a phase in which rate hikes are possible at any meeting.
Analysts said the testimony gave the Fed more flexibility to hike rates later than June. Short-term rate futures contracts showed traders had shifted their expectations of an initial rate hike from September to October, according to data collected and analyzed by CME FedWatch.
"June is very well on the table, but the risk of a later liftoff has increased somewhat," said Anshul Pradhan, director of rates research at Barclays in New York.
The Treasury sold $26 billion in two-year notes to strong demand, giving Treasuries prices an additional boost. Sales to primary dealers, or the banks that deal directly with the Fed, were the smallest since March, while indirect and direct bidder purchases were solid.
"The stats suggest that there is strong demand for the front end at current yield levels," said Pradhan of Barclays.
Two-year note yields hit 0.55 percent after the auction, their lowest in 2-1/2 weeks. Three-year note yields also hit their lowest in 2-1/2 weeks, at 0.95 percent.
Data showing U.S. consumer confidence pulled back from a multiyear high and fell more than expected in February also supported Treasuries prices.
"It certainly didn't hurt the rally," said Tyler Tucci, Treasury strategist at RBS Securities in Stamford, Connecticut.
U.S. 30-year Treasuries were last up 1-4/32 in price to yield 2.6 percent, from a yield of 2.65 percent late on Monday. Benchmark 10-year notes were last up 20/32 to yield 1.99 percent, from 2.06 percent late Monday.
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