NEW YORK: US Treasury prices gained on Friday as stocks fell and as investors focused on whether the Federal Reserve is likely to raise interest rates for the first time in almost a decade when it meets next week.
Investors have reduced expectations that the US central bank will act next week due to stock market turmoil from concerns over Chinese and global growth.
If the Fed does not raise rates, it may still suggest that an increase at its October or December meeting is likely.
"It's all about whether the Fed indicates that they are going to do some kind of tightening," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets in New York.
Benchmark 10-year notes were last up 9/32 in price to yield 2.19 percent, down from 2.22 percent late on Thursday. Thirty-year bonds gained 26/32 in price to yield 2.95 percent, down from 2.99 percent.
The yield curve also flattened as investors prepared for a possible rate increase. The gap between five-year note and 30-year bond yields flattened to 142 basis points from 144 basis points on Thursday.
"Investors are trying to get into flattening trades because their perception is that if the Fed doesn't tighten next week they will tighten sometime this year," said di Galoma.
The completion of heavy new issuance of Treasury and corporate debt also helped bonds rally, although a number of companies are still expected to sell new debt on Friday.
The government sold $58 billion in new coupon-bearing supply this week, while investment-grade companies have sold more than $50 billion in high-grade debt so far this week.
Data on Friday showed that US producer prices were flat in August, pointing to benign inflation pressures that could weigh on the Federal Reserve's decision whether to hike interest rates next week.
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