Treasuries Rise, Cement Weekly Gain Amid Post-Fed Buying

  • Yields led lower by Europe after ECB official comments
  • Rally extended after consumer inflation expectations fall

Treasuries rose Friday, adding to weekly gains, as a gauge of U.S. consumer inflation expectations tumbled, and as European bonds erased losses spurred by hawkish comments from a European Central Bank official.

Yields were lower by two to four basis points at 3 p.m. in New York, with the 10-year down by 4 basis points at about 2.50 percent. It touched 2.484 percent Thursday, the lowest since March 6, extending the rally sparked by the Federal Reserve’s dovish interest-rate forecasts on Wednesday. Yields reached session lows after a University of Michigan survey found that consumers’ expected inflation reading for the next five years fell to 2.2 percent in March, the lowest since 1980.

  • German yields, which climbed during European trading after ECB Governing Council member Ewald Nowotny on Thursday discussed raising ECB deposit rate, retreated as EUR/USD too reversed its initial reaction; also Thursday, ECB Executive Board member Praet said inflation outlook doesn’t warrant a policy change
  • UST yields also declined in tandem with USD/JPY rate, with which they’ve been highly correlated over recent months, as long USD and short UST positions have grown crowded
  • UST selloff into the FOMC meeting pushed yields to YTD highs; apparently “there was quite a bit of money waiting for the Fed decision that’s since been put to work,” said Dan Mulholland, head of UST trading at Credit Agricole in New York
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