Treasurys mostly flat in wake of Yellen comments
New York (Mar 20) U.S. bonds were roughly unchanged on Thursday a day after Federal Reserve Chair Janet Yellen spooked traders by signaling the U.S. central bank's policy-makers may start raising interest rates sooner than expected.
Speaking at a press conference after the Fed's two day policy meeting, Yellen said the Fed could raise rates six months after its current bond-buying program ends, which spurred selling on fears of a sooner-than-expected move away from the central bank's near-zero rate policy.
"The big move, for now, is over," said Dion Chu, U.S. Treasury trader at Jefferies & Co. in New York, in reference to the 16 basis-point rise in the five-year note's yield and the 9 basis-point rise in the benchmark 10-year Treasury yield on Wednesday.
While most Treasurys yields were little changed from Wednesday's levels, short-term interest rates continued to rise modestly on Thursday in the wake of Yellen's comments. Yellen said the Fed will probably end its massive asset purchase program this fall.
The 3-year U.S. Treasury note was last down 2/32 in price to yield 0.91 percent, compared to a yield of 0.88 percent late Wednesday. The yield on the 5-year Treasury note was last at 1.72 percent, up from 1.70 percent late Wednesday.
The second day of selling pressure on short-dated bonds showed the continued impact of Yellen's comments on raising rates, said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago.
The rise in the five-year note's yield to 1.71 percent on Wednesday was the largest one-day rise since July 2013. Bond yields move inversely to their prices.
Traders on Thursday largely shrugged off Labor Department data showing initial claims for state unemployment benefits increased by 5,000 last week, which was lower than expected and pointed to some underlying strength in the labor market.
The stronger-than-expected data was not likely to change Fed policy, said Chu of Jefferies, given that weak U.S. economic data since the start of 2014 has had little impact on the central bank's decision-making.
Data on U.S. existing home sales also had little impact on Treasuries prices. The National Association of Realtors said U.S. home resales dropped 0.4 percent in February to an annual rate of 4.60 million units, a 19-month low but in line with economists' expectations.
"It certainly is a continuation of a cooling of the housing market," said Hoogendoorn of BMO. He said last year's rise in U.S. interest rates on fears of a pullback in the Fed's bond-buying program has continued to weaken the housing market.
The Philadelphia Federal Reserve Bank said its business activity index rose to 9.0 in March from -6.3 in February, topping economists' expectations for 3.8, according to a Reuters poll. The data had a muted impact on Treasuries prices, however.
The benchmark 10-year U.S. Treasury note was last down 3/32 to yield 2.78 percent, showing little change from late Wednesday, when the yield was at 2.77 percent.
The 30-year Treasury bond, meanwhile, were flat in price to yield 3.66 percent, down from 3.67 percent late on Wednesday.