June 4, 2019 / 8:30 PM / 4 months ago

TREASURIES-U.S. bond yields rise as stocks bounce on rate-cut hopes

* Powell says Fed to act “as appropriate” in face of risks

* Futures imply traders still see multiple U.S. rate cuts

* Investors reduce bullish bets on U.S. bonds - survey (Updates market action, adds quote)

By Richard Leong

NEW YORK, June 4 (Reuters) - U.S. Treasury yields rose on Tuesday with longer-dated yields climbing from their lowest since September 2017, as Wall Street stock prices recovered from recent losses tied to growing trade conflicts between the United States and key trade partners.

Major U.S. stock indexes increased more than 2% in the wake of comments from St. Louis Federal Reserve President James Bullard who said on Monday an interest rate cut may be “warranted soon” due to global trade risks and weak domestic inflation.

Fed Chairman Jerome Powell said on Tuesday the U.S. central bank will respond “as appropriate” to risks posed by a global trade war and other recent developments, supporting the view of a possible rate decrease in the coming months.

“Powell’s comments were a little more dovish than I had expected. He understands inflation is below 2% and some inside the Fed are concerned about that. There are also concerns about trade,” said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.

Trade tensions remained high on Tuesday after U.S. President Donald Trump said he would probably impose new tariffs on Mexico next week despite Mexico’s promise to put forward a proposal to show it is taking steps to stem immigration at the U.S. southern border.

In late U.S. trading, benchmark 10-year Treasury yields rose 4.50 basis points to 2.126% after hitting 2.061%, their lowest since September 2017 on Monday.

A J.P. Morgan survey showed bond investors’ net long positions in longer-dated Treasuries fell to their lowest since mid-April.

Two-year yields declined 4.30 basis points to 1.883%. They touched 1.834% on Monday, their lowest since December 2017.

Shorter-dated yields have tumbled on a growing conviction that the Fed would lower key rates more than once before year-end to stave off a recession.

Interest rate futures implied traders are now pricing as many as four rate cuts between now and mid-2020, according to the CME Group’s FedWatch program.

The Fed will consider investors’ expectations when they weigh what to do with interest rates, but they will not be “handcuffed” to market prices, Fed Vice Chair Richard Clarida told CNBC television.

The remarks from Powell, Clarida and Bullard hinting at the possibility of rate cuts are intended to soothe investors who have been rattled by the trade tensions, analysts agreed.

“They want to tell the market that they got this,” said Gregory Hahn, chief investment officer at Winthrop Capital Management in Indianapolis, who expected a possible half a point rate-cut in the fourth quarter.

Reporting by Richard Leong Editing by Chizu Nomiyama, James Dalgleish and Sonya Hepinstall

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