TREASURES – UST Yield Decreases in Hope for Fed Policy Reversal

NEW YORK, Jan 9 (Reuters) – U.S. Treasury yields slipped on Monday amid investor speculation that the Fed may soon stop raising interest rates as last week’s data pointed to a slowdown in the U.S. economy, which could also lead to to lower inflation rates.

Yields on 10-year UST fell 0.9 bps to 3.562%, while 2-year US bonds, which often react to changes in monetary policy, fell 2.9 bps. up to 4.231%.

On the closely watched portion of the US government yield curve between 3-month and 10-year bonds, the gap was minus 106.08 bp, having previously reached a record level of minus 136.1 bp.

The yield on 30-year US government bonds, in turn, rose by 0.7 bp. up to 3.699%.

“There is a tug of war going on: markets do not believe the Fed can tighten policy and keep rates high for an extended period – and on the other hand, there are expectations that weakening inflation and weaker economic data will allow the Fed to begin easing at some point in this year,” said Andrzej Skiba of RBC Global Asset Management, adding that the markets may be in too much of a hurry.

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(Herbert Lash)

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