Treasuries Sent Every Which Way by Dueling Fed Policy Makers

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The Federal Reserve is keeping the Treasury market guessing.

U.S. government debt swung between gains and losses as Fed policy makers offered conflicting views on when to raise interest rates for the first time since 2006. That added to confusion among investors trying to digest a string of weaker-than-forecast economic reports that roiled bets for an increase in borrowing costs as early as June.

“There’s a lot of division at the Fed,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “The numbers are going to indicate to her when it’s time to go,” he said, alluding to Fed Chair Janet Yellen -- who didn’t talk Thursday.

Yields on 10-year notes were little changed at 1.89 percent at 5 p.m. New York time, according to Bloomberg Bond Trader data, after rising a much as four basis point and dropping two. The price of the benchmark 2 percent note due in February 2025 was 100 31/32.

Fed Vice Chairman Stanley Fischer sent Treasuries tumbling, in the day’s biggest move, after reminding investors the central bank wants to raise interest rates. The Fed can’t hold at zero forever, he said.

Weighty Words

“His words carry a lot of weight,” said Michael Lorizio, senior trader at Manulife Asset Management in Boston. “There was nothing earth-shattering -- you shouldn’t be dependent on the Fed staying on hold forever. That wasn’t new information, but a sobering reminder.”

Fed Bank of Atlanta President Dennis Lockhart halted the selloff when he said he wanted to see both falling unemployment and rising inflation prior to the first rate increase.

As for Cleveland Fed President Loretta Mester, she’s “comfortable with lift-off relatively soon,” depending on data. Next up was Fed Bank of Boston President Eric Rosengren, who said recent economic weakness means the economy isn’t ready for a rate increase.

“The Fed’s trying to get away from zero, and we all think that, but no one is expecting any aggressive tightening,” said Brian Edmonds, the head of interest-rates trading in New York at Cantor Fitzgerald LP, one of 22 primary dealers that trade with the Fed. “It’s more choppy than it’s been in a while, but it’s probably the new normal.”

The latest Bloomberg survey shows 71 percent of participating economists expect the Fed’s first rate hike in almost a decade to come at its September meeting. That’s up from 32 percent in last month’s survey. The camp calling for a June hike shrank to 12 percent from 45 percent in March.

Treasuries rose earlier as housing starts climbed 2 percent to a 926,000 annualized rate from a revised 908,000 in February that was the weakest in more than a year, the Commerce Department said Thursday. A separate report from the Labor Department showed applications for unemployment benefits increased by 12,000 to 294,000 in the week ended April 11.

Those results added to below-forecast readings released this month for American factories, payrolls and retail sales.

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