Prices steady in choppy session as trade fears, rate hikes weighed

NEW YORK: Treasuries were little changed on the day Wednesday in choppy trading as investors weighed the risks of trade wars following the resignation of Gary Cohn, the top economic advisor to US President Donald Trump, and the prospect of a more hawkish Federal Reserve as economic momentum improves.

Cohn's resignation on Tuesday came after he lost a fight over Trump's plans to impose hefty steel and aluminum import tariffs.

"The concern is that there could be trade wars, and secondly that Gary Cohn is a big player over the last year in his economic decisions," said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York. "It's a little more uncertainty."

Benchmark 10-year notes were last little changed from Tuesday at yields of 2.88 percent, though trading was choppy through the day.

Bonds largely moved in parallel with stocks, with yields falling as stocks dropped and rising when stocks gained.

Treasuries were supported earlier on Wednesday by data showing the US trade deficit grew to a more than nine-year high in January, with the shortfall with China widening sharply.

They pared price gains, however, after payrolls processor Automatic Data Processing (ADP) said that employers added 235,000 jobs in February, more than expected.

Friday's employment report for February will be evaluated for new indications of rising wages after January's report showed wages recording their largest annual gain in more than 8-1/2 years.

"There may be a little bit more anticipation than what we've had lately for the jobs report on Friday because of the wage report that we had for the last one," said Lou Brien, a market

strategist at DRW Trading in Chicago.

Stronger economic data and higher inflation readings are raising expectations that the Federal Reserve will hike interest rates four times this year, more than the three increases that were previously expected.

Fed Governor Lael Brainard adopted a more hawkish tone in a speech on Tuesday, noting economic "headwinds are shifting to tailwinds" given the "substantial" boost from US tax cuts and government spending and synchronized global growth.

The comments back testimony from Fed Chairman Jerome Powell last week that the economy had strengthened recently, a remark that prompted investors to increase bets on four rate increases in 2018.