NEW YORK: US medium- and long-dated Treasury yields hit multi-week lows on Wednesday as investors expected the Federal Reserve could note the lack of inflationary pressures in its upcoming policy statement.
The expectation of higher interest rates before long boosted yields on ultra-short Treasury bills as traders anticipate that strength in the U.S. jobs market will still lead the Fed to raise rates by June or September, affecting pricing in short-dated Treasury bills.
Analysts said weakness in oil prices underscored low inflation, and so investors were buying longer-dated securities on the view their yields could fall further if the Fed acknowledges weak inflation in its policy statement at 2 p.m. EDT (1800 GMT).
"The long end is being supported by the view that the Fed might temper their view on inflation," said Sean Murphy, a Treasuries trader at Societe Generale in New York. Longer-dated Treasuries benefit from a lack of inflation, which erodes the value of interest payouts.
Benchmark 10-year yields hit 2.01 percent, their lowest since March 2, while 30-year yields hit 2.56 percent, their lowest since Feb. 26. The one-month T-bill rate hit 0.061 percent, the highest since early December, while the one-year bill rate hit 0.278 percent, the highest since April 2011.
"The market is getting very cautious. People are really trying to hedge their bets," said Gennadiy Goldberg, interest rates strategist at TD Securities in New York.
While yields on Treasury bills remained near those highs, yields on shorter-dated Treasury notes were stable. While the Fed is widely expected to remove the word 'patient' from its statement to describe the timing of its first rate hike, a move which could signal a June rate hike, analysts said the lack of inflation and recent weakness in U.S. economic data could prevent such a move.
Short-dated Treasuries are considered to be most vulnerable to the Fed's first rate hike. The most recent Reuters poll of Wall Street dealers in Treasury securities showed a split, with nine of 16 expecting an increase in June, and the rest seeing a hike in September or later.
"There is a little bit of a reluctance of investors to buy into the view wholeheartedly that the Fed will raise rates in June," Murphy said.
U.S. 10-year notes were last up 7/32 in price to yield 2.03 percent, from a yield of 2.06 percent late Tuesday. U.S. 30-year bonds were lat up 18/32 in price to yield 2.59 percent, from a yield of 2.62 percent late Tuesday.
U.S. two-year notes were last flat in price to yield 0.67 percent.
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