Treasuries Drop as Yellen Says Fed Is on Pace to Raise Rates bloomberg/news/2014-12-17/u-s-2-year-notes-gain-as-fed-takes-patient-approach-to-rates.html Treasuries declined after Federal Reserve Chair Janet Yellen suggested that the central bank may increase interest rates sooner than anticipated next year. Longer-term U.S. government securities led losses as policy makers said they will be patient on the timing of the first interest-rate increase since 2006, replacing a pledge to keep borrowing costs near zero for a “considerable time,” and raised their assessment of the labor market. Yellen said at a news conference a rate increase won’t take place for “at least the next couple of meetings.” Shorter-maturity debt briefly pared losses after the central bank reduced projections for the federal funds rate. The yield on 10-year Treasuries rose eight basis points, or 0.08 percentage point, to 2.14 percent as of 3:15 p.m. in New York, according to Bloomberg Trader data. The 2.25 percent note due in November 2024 fell 22/32, or $6.88 per $1,000 face amount, to 101. Two-year note yields added four basis points to 0.59 percent, after dropping as much as four basis points. Thirty-year bond yields increased five basis points to 2.74 percent, after dropping yesterday to 2.70 percent, the lowest level since August 2012. The Fed’s decision was made as financial markets face turbulence from plunging oil prices that have exacerbated disinflationary pressure facing Europe and Japan and contributed to Russia’s decision yesterday to raise its benchmark interest rate to stem capital flight. “The committee judges that it can be patient in beginning to normalize the stance of monetary policy,” the Federal Open Market Committee said in a statement in Washington, removing a calendar-based phrase with language that gives it more flexibility to respond to economic data. “The committee sees this guidance as consistent with its previous statement that” rates are likely to stay near zero for a “considerable time.” The benchmark rate will be 1.125 percent at the end of next year, compared with a 1.375 percent median estimate in September, quarterly estimates from U.S. central bankers showed today in Washington. The rate will be 2.5 percent at the end of 2016, and 3.625 percent at the end of 2017, according to the median. While the U.S. has generated an average 228,000 jobs per month this year, inflation has remained below the 2 percent level aimed for by policy makers for the past 30 months. A measure of volatility rose yesterday to the highest level since October. Bank of America Merrill Lynch’s MOVE Index, which gauges price swings in Treasuries based on options, rose to 80.72. The 2014 average is 61.77. The U.S. consumer-price index dropped 0.3 percent, the most since December 2008, after being little changed the prior month, a Labor Department report showed. The median forecast of 84 economists surveyed by Bloomberg called for a 0.1 percent fall. Yellen said the plunge in oil prices is a plus for the economy and will have only a transitory impact on inflation. The “very substantial decline we have seen in oil prices is one of the most important developments shaping the global outlook,” Yellen said. Treasuries returned 6.7 percent this year as of yesterday, according to the Bloomberg U.S. Treasury Bond Index, after losing 3.4 percent last year.
Posted on: Thu, 18 Dec 2014 09:50:46 +0000
Trending Topics
Recently Viewed Topics
© 2015