May 1, 2019 / 7:24 PM / 3 months ago

REFILE-TREASURIES-Yields rise after Fed's Powell says low inflation may be transitory

 (Corrects typographical error in headline to make it "yields"
instead of "yield")
    * Fed's Powell takes bullish view on economy
    * U.S. manufacturing activity slowed to a 2-1/2-year low 
    * Employers added 275,000 jobs in April - ADP
    * Treasury to sell $84 bln coupon-bearing supply next week

    By Karen Brettell
    NEW YORK, May 1 (Reuters) - U.S. Treasury yields rose on
Wednesday after Federal Reserve Chairman Jerome Powell said a
decline in inflation this year could be due to transitory
factors, after the U.S. central bank’s meeting statement struck
a cautious tone on inflation.
    Yields initially fell to one-month lows after the Fed’s
policy statement suggested that a recent decline in inflation
may be more persistent than expected, and was no longer to be
blamed simply on falling energy prices.             
    The yields reversed, however, after Powell said that the
drop in inflation this year may be transitory. Factors holding
it down could include portfolio management, apparel prices and
air fares, he added.             
    “Powell indicates transitory lower inflation,” said Jim
Vogel, an interest rate strategist at FTN Financial in Memphis,
Tennessee. “He also sounds more bullish on economy than (the)
    Two-year note yields            rose to 2.30 percent, after
initially falling to 2.21 percent on the statement, the lowest
since March 28.
    Benchmark 10-year note yields             gained to 2.51
percent, after initially dropping to 2.46 percent, the lowest
since April 1.
    The yield curve between two-year and 10-year notes
               flattened to 21 basis points after initially
expanding to 25 basis points, the steepest level since November
    The Fed also cut the interest the Fed pays banks on excess
reserves to 2.35 percent from 2.40 percent in an effort to
ensure its key overnight lending rate, the federal funds rate,
remains within the current target band.
    Yields fell earlier on Wednesday after data showed that U.S.
manufacturing activity slowed to a 2-1/2-year low in April amid
a sharp drop in new orders.             
    Jobs data for April released on Friday will next be watched
for further indications of wage pressures and the strength of
the labor market.
    U.S. private employers added 275,000 jobs in April, well
above economists' expectations and the most since last July, the
ADP National Employment Report showed on Wednesday.             
    The Treasury said on Wednesday that the U.S. government will
have to stop borrowing money between July and December if
Washington does not agree to raise the debt ceiling.
    It also said it plans to sell $84 billion in coupon-bearing
supply next week, including $38 billion in three-year notes, $27
billion in 10-year notes and $19 billion in 30-year bonds.

 (Editing by David Gregorio and Jonathan Oatis)
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