Treasuries Snap Longest Slide Since 2014 on View of Gradual Fed

How Investors Should Read the Fed Statement
  • Benchmark 10-year note yields tumble by the most in a month
  • Yield curve flattens as investors pile into long-dated bonds

Treasuries surged, with 10-year notes halting their longest slide since 2014, as the Federal Reserve left interest rates unchanged and gave traders little reason to move up bets on the timing of policy makers’ next boost.

Longer-maturity debt led the advance after officials kept the range for the federal funds rate at 0.25 percent to 0.5 percent, as forecast. In its statement, the Federal Open Market Committee reiterated it will probably raise rates at a gradual pace, while noting that growth in economic activity “appears to have slowed.” Policy makers’ next gathering to set rates is June 14-15.

The Fed has been trying to tighten monetary policy as peers including the Bank of Japan and the European Central Bank maintain or increase stimulus amid a tepid global economic expansion and weak inflation. Wednesday’s policy statement prompted strategists at banks including BNY Mellon, Toronto Dominion Bank and UBS Securities LLC to suggest the Fed may hold off on raising rates until September.

“The statement really confirmed and validated the lower-for-longer, Fed-on-hold scenario,” said Subadra Rajappa, head of U.S. rates strategy in New York at Societe Generale SA, one of 23 primary dealers that trade directly with the Fed. “People had positioned for the potential of a more hawkish statement, and when they didn’t get it, they felt comfortable going into the long end.”

Falling Yields

Yields on benchmark 10-year notes tumbled the most in a month, falling eight basis points, or 0.08 percentage point, to 1.85 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The consensus on Wall Street is that the yield will rise to 2.27 percent by year-end, according to the median forecast in a Bloomberg survey.

The price of the 1.625 percent security due in February 2026 rose 21/32, or $6.56 per $1,000 face amount, to 97 31/32. The maturity had declined the past seven trading days, the longest losing streak since 2014. 

The gap between yields on two-year notes and 10-year debt, known as the yield curve, narrowed by the most since March 8 to 1.03 percentage point.

Traders still aren’t fully pricing in another Fed move until next year, after the central bank raised rates for the first time in nearly a decade in December.

The Bank of Japan may announce further easing when it concludes a policy meeting Thursday, according to 23 of 41 analysts surveyed by Bloomberg.

”We’ll be looking for surprises,” in the BOJ’s statement, Rajappa said. “We might see more QE, or potentially more credit easing like the ECB has done.”

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