TREASURIES-Yields slip as investors move toward safe haven assets

BY Reuters | TREASURY | 04/19/24 11:52 AM EDT

(Updates as of 11:45 ET.)

By David Randall

NEW YORK, April 19 (Reuters) - U.S. Treasury yields dipped from near five-month highs Friday as investors moved toward safe haven assets in the wake of a presumed Israeli attack on Iran.

Tehran played down the incident and indicated it had no plans for retaliation, a response that appeared gauged towards averting region-wide war.

Easing concerns over a broad Middle East conflict will likely continue to pressure Treasuries, which have sold off for much of the week on rising concerns that persistent inflation will prevent the Federal Reserve from cutting interest rates this year.

A number of Fed officials have said this week that they do not feel the urgency to cut rates given the strength of the U.S. economy and labor market. Minneapolis Fed President Neel Kashkari told Fox News Channel late Thursday that he also wants to be "patient," with the first rate cut "potentially" not appropriate until next year.

Chicago Federal Reserve President Austan Goolsbee joined the chorus on Friday, becoming the latest U.S. central banker to drop an earlier focus on the coming need for interest rate cuts.

"Given the strength of the labor market and progress on easing inflation seen over a longer arc, I believe the Fed's current restrictive monetary policy is appropriate," Goolsbee said during an appearance before a business journalism group in Chicago. "I think we have to recalibrate and we have to wait and see."

Markets are now pricing in a total of 40 basis points in rate cuts by the end of the year, down from 48 at the start of the week and sharply lower than the more than 160 basis points in cuts expected at the start of January.

Continued conflict in the Middle East is likely to continue to push up inflation expectations, driving Treasury yields higher, said Thierry Wizman, global FX & rates strategist at Macquarie.

"A scenario of ongoing shadow wars, border wars, and limited wars may keep inflation expectations high and make the Fed's job harder," but not cause a critical mass of panic needed to drive a flight to safety that bond bulls would hope for," he said.

The yield on 10-year Treasury notes was down 3.9 basis points at 4.608%. The yield on the 30-year Treasury bond fell down 3.9 basis points to 4.706%.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 2.4 basis points at 4.966%.

(Reporting by David Randall; Editing by Angus MacSwan and Richard Chang)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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