Treasuries Gain as Fed Speakers See Cautious Path to Rate Boost

  • Fed officials speak on U.S. economy and monetary policy
  • Treasury sells 30-year bonds at highest yield since July

Treasuries rose, pushing 10-year yields down from close to a three-month high, as Federal Reserve officials stressed the need for a cautious approach to lifting interest rates while reiterating their inclination to begin the process this year.

Chicago Fed President Charles Evans said any increases should be “gradual” and rates could be less than 1 percent at the end of next year, while Richmond Fed President Jeffrey Lacker said caution is warranted in policy responses to financial markets. Their remarks came as New York Fed President William C. Dudley said the conditions needed to begin normalizing monetary policy “could soon be satisfied,” and St. Louis Fed President James Bullard said keeping rates near zero is no longer needed with labor and inflation gains near the central bank’s goals.

The policy makers spoke Thursday as investors seek hints regarding both the timing of an initial liftoff and the pace of subsequent increases. The central bank last month signaled it may raise rates for the first time since 2006 at its next meeting in December. Since then, futures traders have boosted the probability of an increase this year as data supported the view that the U.S. economy is growing.

"Nobody specifically wanted to say yes to December or no to December," said John Briggs, head of strategy for the Americas at RBS Securities Inc. in Stamford, Connecticut, referring to the Fed speakers. "The important stuff now is we’re going to focus back on the data."

The 10-year note yield fell two basis points, or 0.02 percentage point, to 2.31 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The 30-year bond yield fell three basis points to 3.09 percent.

Treasury Auction

The Treasury sold $16 billion of 30-year bonds Thursday at a yield of 3.07 percent, the highest since July. The yield was lower than the 3.087 percent level traders anticipated in a Bloomberg News survey before the auction.

Futures contracts signal a 64 percent chance that Fed officials will raise their target rate by year-end. The next policy announcement is scheduled for Dec. 16. The calculations assume the rate will average 0.375 percent after the first increase, versus the current target range of zero to 0.25 percent.

Dudley said in a speech to the Economic Club of New York that the central bank should proceed with caution as it raises rates, while not specifying whether he anticipates rates rising at next month’s policy meeting.

“After liftoff commences, I expect that the pace of tightening will be quite gradual,” he said.

Fed Chair Janet Yellen was also among Thursday’s speakers. Fed Vice Chairman Stanley Fischer will speak at 6 p.m. in Washington.

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