(Recasts with Fed statement, adds quote, updates prices)
* Fed sees slowing growth as transitory
* Treasury evaluating ultra-long bonds
* Long bonds gain, yield curve flattens
By Karen Brettell
NEW YORK, May 3 Benchmark U.S. Treasury yields
rose after the Federal Reserve kept interest rates unchanged and
downplayed weak first-quarter economic growth, keeping a rate
increase in June on the table.
In a bullish statement following the end of a two-day
meeting, the central bank emphasized the strength of the labor
market and said inflation has been "running close" to the Fed's
“The Fed doesn’t need the economy to excel from where it is
now in order to raise rates further,” said Lou Brien, a market
strategist at DRW Trading in Chicago. “They want to move the
rate higher than where it is given the current conditions, and I
don’t think they want to take that anticipation off the table
just because we’ve had some slowing data."
Benchmark 10-year notes fell 4/32 in price to
yield 2.31 percent, up from 2.30 percent on Tuesday.
Futures traders are pricing in a 75 percent chance of a June
rate increase, up from 71 percent before the statement,
according to the CME Group’s FedWatch Tool.
U.S. 30-year bond yields fell and the yield curve flattened
after the Treasury Department said it was studying the issuance
of an ultra-long bond but did not commit to one.
That came after Treasury Secretary Steven Mnuchin said on
Monday that his department was looking into the issuance of
bonds with maturities beyond 30 years.
“I think a lot of people were expecting the Treasury to
commit to an ultra-long issue,” said Gennadiy Goldberg, interest
rate strategist at TD Securities in New York.
The Treasury Borrowing Advisory Committee (TBAC), a group of
banks and investors that advises the Treasury on debt issuance,
also expressed reservations about demand for longer-dated bonds.
In a presentation released on Wednesday, the TBAC said it
does “not see evidence of strong or sustainable demand for
maturities beyond 30 years."
Thirty-year bonds gained 15/32 in price to yield
2.96 percent, down from 2.98 percent on Tuesday.
The yield curve between 5-year notes and 30-year bonds
flattened to 111 basis points, from 117 basis
points on Tuesday.
The Treasury also kept the size of its 10-year and 30-year
bond sales planned for next week unchanged, after some investors
had expected these issues to be increased.
The Treasury said it will sell $62 billion in coupon debt
next week, including $24 billion in 3-year notes, $23 billion in
10-year notes and $15 billion in 30-year bonds.