Yields fall as Fed rate hike in September seen less likely

NEW YORK: US Treasury yields fell Thursday after minutes from the Federal Reserve's most recent meeting offered no firm indication of how soon the Fed may raise interest rates and reducing expectations of a rate hike next month.

US central bank officials widely agreed last month the economy was nearing the point where rates should move higher, but worried lagging inflation and a weak global economy posed too big a risk to commit to "liftoff."

"The thought is that the Fed is not going to move in the September meeting. They really did not put forth an exact timeline and people had really felt that the Fed was going to telegraph the rate hike," said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle.

Benchmark 10-year notes were last up 11/32 in price to yield 2.09 percent. The yields have fallen from 2.50 percent in mid-June.

Short-term US interest rates in the over-the-counter market on Thursday hinted traders saw a one-in-three chance the Fed would raise interest rates in September. A week ago, they implied a 48 percent chance of a September rate hike.

Concerns about low inflation have increased as oil prices plunge to 6-1/2 year lows. US crude oil prices fell to almost $40 a barrel Thursday, their lowest since 2009, before turning higher on news of the first hurricane of the 2015 Atlantic season.

Inflation concerns, however, did not dent demand for new Treasury Inflation-Protected Securities (TIPS) on Thursday.

The US Treasury Department sold $16 billion of five-year TIPS to record investor demand as the sector's recent rout enticed bargain-minded participants to the auction.

Data also reflected a still strengthening US economy.

US home resales rose to a near 8-1/2-year high in July and factory activity in the mid-Atlantic region picked up this month, fresh signs of steady economic growth that likely keeps the Federal Reserve on track to raise interest rates this year.

The Treasury will sell $90 billion in new coupon-bearing debt next week, including $26 billion in two-year notes, $35 billion in five-year notes and $29 billion in seven-year notes.