U.S. Treasury Bond Slump After Fed's William Dudley Remarks
The U.S treasury bonds slumped on Monday after snapping the early morning gains as investors cheer Federal Reserve President William Dudley comments and Brent crude picked up after sharp falls in the morning. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, moved rose 0.68 pct to 1.764 pct and the yield on the 3-year Treasury bond climbed 1.20 pct to 0.894 pct by 1243 GMT.
The New York Federal Reserve President William Dudley said that labour market conditions have significantly improved and economic news for the US is mostly favourable. Said he is confident that inflation will rise to 2% in 2017 and monetary policy adjustments to be gradual and cautious.
Apart from this, the negotiations between Petroleum Exporting Countries (OPEC) and Russia failed to reach an agreement in the Doha round of talks on Sunday to strike a deal on oil output freeze. On the other hand, Saudi Arabia said that they were ready to freeze the current level of crude oil production on condition that all other producing countries follow the same. The International benchmark Brent futures fell 3.32 pct to $41.65 and West Texas Intermediate (WTI) tumbled 4.44 pct to $38.57 by 1250 GMT.
On Friday, the industrial production plunged 0.6 pct m/m in March, against market expectation of 0.1 pct m/m fall, from down 0.5 pct in February. Moreover, manufacturing output declined 0.3 pct m/m (consensus was for 0.1 pct m/m), from prior 0.1% (revised to -0.1 pct).
After wave of disappointing data last week, market will no more speculate any early hike from Federal Reserve in its up-coming policy meeting. Nevertheless, we continue to see a more careful, wait and see approach to continue being employed by the Fed likely to materialize in higher rates come the June FOMC meeting (still delivering only 50bps of additional tightening over the course of 2016).
Also, the Federal Reserve Chair Yellen said that there is a great deal of uncertainty over interest rate hike and therefore, she favours a cautious approach.
Lastly, the investors now focus on to a lighter flow of data in the week ahead, highlighted by housing starts/building permits, Philadelphia Fed manufacturing activity and Markit US manufacturing PMI towards the end of the week. Markets also receive a 5-Year TIPS auction on Thursday.
The material has been provided by InstaForex Company - www.instaforex.com