April 29, 2019 / 7:16 PM / in 21 days

TREASURIES-Yields rise after consumer spending rises in March

 (Adds Treasury refunding, updates prices)
    * Inflation stayed muted in March 
    * Treasury refunding, Fed meeting on Wednesday in focus
    * Friday's payroll data watched for wage pressures

    By Karen Brettell
    NEW YORK, April 29 (Reuters) - U.S. Treasury yields rose on
Monday after data showed that U.S. consumer spending increased
by the most in more than 9-1/2 years in March though price
pressures remained muted.
    The surge in consumer spending sets a stronger base for
growth in consumption heading into the second quarter after it
slowed sharply in the first three months of the year. Tame
inflation, however, supports the Federal Reserve's recent
decision to suspend further interest rate increases this year.
            
    It comes after data on Friday showed that U.S. economic
growth accelerated in the first quarter, though the burst in
growth was driven by a smaller trade deficit and the largest
accumulation of unsold merchandise since 2015. These are
temporary boosters that are seen weighing on the economy later
this year.             
    “There were a lot of people dismissing Friday’s GDP report
as being weaker than the headline number suggested. I think this
shows you that, yes inflation was a little bit softer than
expected, but growth is actually quite solid,” said Gennadiy
Goldberg, an interest rate strategist at TD Securities in New
York.
    Rising stocks on Monday also reduced demand for safe haven
bonds.     
    The next major focus for the market will be the conclusion
of the Federal Reserve’s two day meeting on Wednesday.
    Fed Chairman Jerome Powell will give a press conference
after the Fed statement and investors will be looking for
indications on how the U.S. central bank views market pricing of
further rate moves.
    Interest rate futures traders are currently pricing in a 63
percent chance of an interest rate cut by December, according to
the CME Group’s FedWatch Tool.
    Traders will also be looking for details of what maturities
the U.S. central bank is likely to target under its plan to wind
down purchases of mortgage-backed debt and boost purchases of
Treasuries in the open market instead.
    “That’s roughly $200 billion a year. Anything they announce
there that isn’t in line with expectations will make the market
react,” Goldberg said.
    The Treasury Department will also announce its refunding
plans for the coming quarter on Wednesday. 
    It said on Monday that it plans to borrow much less in the
second quarter than it previously expected. Treasury said it
will borrow $30 billion during the April-June period, less than
half its previous estimate.             
    Jobs data for April released on Friday will be closely
watched for further indications of wage pressures and the
strength of the labor market.

 (Editing by Chizu Nomiyama)
  
 
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