NEW YORK: US intermediate- and long-dated Treasury yields hit their lowest in over two weeks on Tuesday after further declines in oil prices underscored mild inflation, while weak US economic data pointed to a more dovish Federal Reserve.
The weakness in oil prices helped push yields on Treasuries maturing within five to 30 years to their lowest since March 2. Longer-dated Treasuries benefit from a lack of inflationary pressures, since inflation erodes the value of interest payouts.
Brent crude slipped for a fourth straight session, falling below $53 a barrel in choppy trade, hovering near a 1-1/2-month low hit Monday.
"Ongoing weakness in crude oil in the last week is friendly to the long end of the market, just as the weaker data lately is," said Lou Brien, market strategist at DRW Trading in Chicago.
Data showing US housing starts tumbled 17 percent to their lowest in a year in February was the latest indication the economy hit a soft patch in the first quarter.
While analysts said the Fed would still likely omit the word "patient" to describe its approach to the timing of rate increases from its upcoming policy statement, weak US data could lead the central bank to suggest that a rate rise may not be imminent or that the pace of hikes will be gradual.
"The smart money is buying the long end under expectations of a gradual rate-hike trajectory," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
The Fed began its two-day policy meeting on Tuesday.
Analysts said low volume on investor caution ahead of the Fed statement likely exaggerated price movements in the Treasury market.
Just 733,880 10-year T-note futures contracts changed hands as of 3:32 p.m. ET (1932 GMT), slightly above Monday's amount but near the lowest levels since last December.
Analysts also said weakness in US stocks stoked demand for safe-haven Treasuries.
The benchmark S&P 500 stock index was last down 0.2 percent. Benchmark 10-year US Treasury notes were last up 12/32 in price to yield 2.06 percent from 2.1 percent late on Monday. The yield hit a session low of 2.038 percent.
US 30-year Treasury bonds were last up 1-8/32 in price to yield 2.61 percent from 2.68 percent late Monday and near its session low of 2.606 percent.
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