Treasuries flat after Fed's Minehan inflation remarks
Mon Sep 11, 2006
By John Parry
NEW YORK, Sept 11 (Reuters) - U.S. Treasury debt prices were mainly unchanged on Monday after a Federal Reserve official said policy makers expected core inflation to subside, reinforcing investors' expectations the Fed will keep interest rates on hold later this month.
While the session was devoid of economic data, it marked the fifth anniversary of the attacks on New York and Washington, which might lend U.S. government bonds a slight flight-to-safety bid, some bond analysts said.
Boston Fed President Cathy Minehan said she expected to see core inflation subside into next year, although adding that as inflation continues to rise, the Fed must stay vigilant. Treasuries hardly budged.
Benchmark 10-year notes <US10YT> traded unchanged in price for a yield of 4.78 percent, versus 4.78 percent late on Friday. Bond yields and prices move inversely.
The bond market was likely to pay more attention to St. Louis Fed President William Poole, scheduled to speak later in the session about monetary policy. Bond investors anticipate the Fed will keep interest rates on hold at its Sept. 20 policy-setting meeting, and any revival of expectations for a rate hike could trigger a bond market sell-off.
"I was a bit surprised last week with Poole being a bit dovish on core inflation being well contained," said T.J. Marta, fixed income strategist with Royal Bank of Canada Capital Markets in New York.
"If he remains moderate in his statements today I think that will really confirm the market expectations of no Fed hike," Marta added.
Fed Board Governor Donald Kohn is also scheduled to speak later about payment systems.
Bond prices have generally been rising since late June, lowering the yield on the benchmark 10-year Treasury note <US10YT> by about 42 basis points in the last 10 weeks.
However, investors took profits last week on the recent bull run in Treasuries which had pushed yields down to five-month lows.
Two-year notes <US2YT> traded unchanged in price to yield 4.82 percent, compared with 4.82 percent on Friday.
Earlier, markets did not show immediate reaction to a warning from al Qaeda deputy leader Ayman al-Zawahri in a video aired on Monday that Israel and Gulf Arab states would be the network's next targets.