Treasuries fell, with yields touching a six-week high, as the Federal Reserve provided little insight on when or how quickly it plans to raise interest rates.
U.S. government debt declined a third day as a rout in European bonds made U.S. securities less attractive. Yields briefly dropped after the Fed said a first-quarter economic slowdown was transitory, with the selloff recommencing as traders looked in vain for some direction in the central bank’s policy statement.
“They’re like everyone else, looking at the data and saying ‘we think it’s transitory,’” said New York-based Jack Flaherty, who manages the $17 billion GAM Unconstrained Bond Strategy. “But their crystal ball is no better than anyone else’s.”
The yield on the 10-year note rose four basis points, or 0.04 percentage point, to 2.04 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The price of the benchmark 2 percent security due in February 2025 fell 10/32, or $3.13 per $1,000 face value, to 99 21/32.
Yields touched 2.08 percent, the highest since March 16, still below the 2014 close of 2.17 percent.
Treasury yields climbed as a quickening of inflation in Europe, along with a stabilization in oil prices, sparked a selloff in European debt that sent German yields up the most in more than two years.
“There’s been a little bit of a shift in conversations” about government debt, said John Briggs, head of strategy for the Americas at RBS Securities Inc. in Stamford, Connecticut. “We’ve gone from economies across the world need tons of stimulus,” to “maybe there is a little bit of a reflationary theme coming through.”
Yields on German 10-year debt rose for a third day, adding 12 basis points to 0.28 percent. The gain was the most since Jan. 2, 2013, and the yield reached the highest level since March 17.
Commerce Department data showed the U.S. economy grew at a 0.2 percent annual rate last quarter after advancing 2.2 percent in the prior three months. Economists surveyed by Bloomberg forecast a 1 percent gain.
As the market shrugged off the result, the Federal Open Market Committee also seemed to disregard the miss.
“Although growth in output and unemployment slowed during the first quarter, the committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace,” the Fed said.
Most economists project the Fed will wait until at least September before raising borrowing costs from near zero, according to the latest Bloomberg survey, after earlier projecting a June liftoff.
“I don’t think June is in the cards -- I think it’s more likely it will be September,” Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “I think they do have it right -- inflation will rise eventually. When it happens, whether it’s next month or next quarter” remains to be seen.