Treasury prices gain

US Treasury prices gained on Thursday as weaker stock markets and a falling US dollar increased demand for safe haven bonds, and after comments from a senior Federal Reserve official late on Wednesday were viewed as relatively dovish. US stock markets were weighed down by energy stocks as oil prices dropped and as banks shares fell for the first time in six days.
"We're responding a little bit to the weakness in equities," said Michael Cloherty, head of US rates strategy at RBC Capital Markets in New York. Comments from New York Fed President William Dudley late on Wednesday were also seen as more dovish than recent commentary from Fed Chair Janet Yellen. The Fed aims to raise rates in the months ahead as long as the economy continues to grow a bit above its trend and if, as expected, fiscal policies provide a boost, Dudley said.
Traders are now pricing in a 18 percent chance the US central bank will raise rates at its March meeting, down from 31 percent on Wednesday, according to the CME Group's FedWatch Tool. Benchmark 10-year notes were last up 17/32 in price to yield 2.44 percent, down from 2.50 percent late on Wednesday. Bond yields jumped after Yellen took a more hawkish-than-expected tone in testimony to lawmakers on Tuesday, indicating that further rate hikes are likely in the coming months. A jump in consumer price inflation and retail sales data on Wednesday added to this sentiment, while a Philadelphia manufacturing index on Thursday jumped to a 33-year high.
"The last couple of days have been pricing in a more aggressive Fed with the one-two punch of the high CPI and retail sales, and along with Yellen's testimony," said Cloherty. The recent backup in yields, however, helped draw buyers back to the market on Thursday. "It seems like there is an underlying bid in that 2.50 (percent) area in 10-year notes," said Dan Mulholland, head of Treasuries trading at Credit Agricole in New York. Treasuries have held within their recent range even as investors prepare for the potential for three rate hikes this year, with 10-year notes trading between 2.31 percent and 2.52 percent since the beginning of the year. "The market's been very resilient," said Mulholland. The Treasury Department sold $7 billion in 30-year Treasury Inflation-Protected Securities (TIPS) on Thursday to moderate demand at a high yield of 0.923 percent.