November 16, 2018 / 8:47 PM / 5 months ago

TREASURIES OUTLOOK-U.S. yields fall as Fed comments spark talk of rate hike end

* Fed’s Clarida says interest rates nearing neutral level

* Fed’s Kaplan warns about slowing global growth -Fox interview

* U.S. 30-year, 10-year, 2-year yields fall to 2-week lows (Repeats to additional subscribers without any changes to text)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 16 (Reuters) - U.S. Treasury yields retreated on Friday after a top Federal Reserve official said U.S. interest rates are nearing the central bank’s estimates of a neutral level, suggesting that the current tightening cycle may soon end.

U.S. benchmark 10-year, 30-year, and two-year yields dropped to two-week lows, while yields on intermediate maturities - five-year and seven-year notes - tumbled to their lowest in two months.

In a CNBC interview at the U.S. central bank’s Washington headquarters on Friday, Fed Vice Chair Richard Clarida said the bank needs to be particularly data-dependent as rates are near the 2.5 percent to 3.5 percent “neutral” range that neither stimulates nor brakes economic growth.

Clarida was making his first public comments since his confirmation by the Senate in August.

“The big driver right now is Fed speech,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. “Clarida indicated a modestly dovish bent on Fed policy, and not a particularly aggressive stance.”

In an interview with Fox Business News on Friday, Dallas Fed President Robert Kaplan said the U.S. economy is stronger than he had thought but faces headwinds next year from weaker global economic conditions and fading impact of President Donald Trump’s tax reform.

Chairman Jerome Powell on Wednesday also cited slowing global growth as an emerging concern among Fed officials as they debate how much further and how quickly to raise their short-term policy rate.

“The one thing that is worth noting is that all three - Powell, Clarida, and Kaplan - referenced negative feedback from foreign economic conditions,” Janney’s LeBas said.

“They also used fairly similar language that suggests the Federal Reserve is concerned about policy implications from global growth,” he added.

In afternoon trading, U.S. 10-year note yields fell as low as 3.066 percent, a two-week low, from 3.118 percent late Thursday. Yields were last at 3.077 percent.

U.S. 30-year bond yields were down at 3.331 percent , from 3.366 percent on Thursday. Earlier in the session, 30-year yields dropped to two-week troughs of 3.323 percent.

On the short end of the curve, U.S. two-year yields slid to a two-week trough of 2.804 percent, compared with Thursday’s 2.862 percent. Two-year yields were last at 2.812 percent.

Chris Ahrens, chief market strategist at First Empire Securities, said slower global growth will not delay the Fed’s next tightening, expected next month.

“But global growth could decelerate to the point where it reverberates into the domestic economy.”

Ahrens added that there is a potential downside break of an upside channel in 10-year yields, with a close below 3.05 percent exposing the 2.98 percent target. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Steve Orlofsky and Grant McCool)

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