Treasuries rallied after minutes from the Federal Reserve’s latest policy-setting meeting showed officials are likely to keep interest rates lower for longer.
U.S. government debt gained for the first time in three days as the minutes showed members of the Federal Open Market Committee last month didn’t expect to raise rates at their next gathering in June even as they concluded that a first-quarter economic slowdown was unlikely to persist. Futures show traders are starting to price in a Fed increase in October.
“They are not in a rush to immediately come off zero interest rates,” said Michael Lorizio, senior trader with Manulife Asset Management in Boston. “They would need to see improvements in economic data before feeling obligated to tighten policy.”
The yield on the 10-year note fell four basis points, or 0.04 percentage point, to 2.25 percent as of 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The benchmark 2.125 percent note due in May 2025 rose 11/32, or $3.44 per $1,000 face value, to 98 29/32.
Treasuries maturing in 10 years or longer have lost 5.1 percent this month, on track for the worst performance since February, according to Bloomberg U.S. Treasury Bond Index data.
Many of the participants “thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied,” according to minutes of the April 28-29 Federal Open Market Committee session released Wednesday in Washington.
“The only thing the market cares about is that it doesn’t look like it’s June” for a rate increase, said Kathy Jones, a fixed-income strategist with Charles Schwab & Co. “The assessment of the economy right now is not so great.”
The minutes also confirmed the FOMC’s statement in April that it expects the economy to return to a “moderate pace” of growth after a first-quarter slowdown. Since the meeting, payrolls figures have improved, while weaker-than-forecast data on manufacturing and retail sales prompted economists to mark down projections for second-quarter economic growth.
U.S. yields rose during the first two days this week by the most since February as a report Tuesday showed residential construction in the U.S. surged in April to the highest level in more than seven years. That fueled optimism the softness in recent economic data may be transitory.
Other reports this month on retail sales, industrial production, producer prices and gross domestic product have all fallen short of economists’ expectations.
The odds of a Fed interest-rate increase in December were 55 percent, according to CME Group Inc. calculations of fed funds futures prices.
The Fed has been struggling with raising rates as inflation remains tepid even as the job market has strengthened. A report May 22 is forecast to show consumer prices grew by 1.7 percent on a year-over-year basis, according to a Bloomberg survey of economists. The Fed’s target is 2 percent.