TREASURIES-Prices dip as Crimea tensions ease, before Fed meeting

Mon Mar 17, 2014 9:42am EDT

Related Topics

* Crimea referendum eases safety bid for Treasuries
    * Fed seen likely to reduce bond purchases, alter guidance
    * Yields hold in recent range as economic data mixed

    By Karen Brettell
    NEW YORK, March 17 (Reuters) - U.S. Treasuries fell in price
on Monday after Sunday's referendum in Crimea passed without
major violence, reducing safety demand for U.S. government
bonds, and before the Federal Reserve's highly anticipated
meeting on Tuesday and Wednesday.
    Crimea formally applied to join Russia on Monday after its
leaders declared a Soviet-style 97-percent result in favor of
seceding from Ukraine in a referendum condemned as illegal by
Kiev and the West that will trigger immediate sanctions.
 
    Without new headlines from the region investors are now
focusing on this week's Fed policy meeting, at which the central
bank is expected to continue to reduce the size of its bond
purchase program but alter its forward guidance.
    "They are going to move away from thresholds on specific
economic indicators and take a more wholistic approach that
depends on subjective evaluation of a broad array of economic
indicators. They are trying to move back to a more normal
approach to policy," said Ward McCarthy, chief financial
economist at Jefferies in New York.
    Benchmark 10-year notes fell 8/32 in price on
Monday to yield 2.67 percent, in the middle of a two-month long
range that has kept yields between 2.57 percent and 2.82
percent.
    The Fed previously said that it would not raise interest
rates until joblessness fell to at least 6.5 percent, a pledge
that policymakers thought would hold until at least mid-2015.
But that rate hit a five-year low of 6.6 percent in January,
before rising to 6.7 percent in February.
    The Fed is seeking to hold short-term rates at record lows
as it gradually unwinds its monetary stimulus, and it is
expected to cut the size of its monthly bond purchases by an
additional $10 billion this week.
    Rates are seen as likely to continue stay relatively low in
the near-term, however, as economic data still shows mixed
growth prospects, and after a recent bout of weakening data that
is seen at least partly due to bad weather.
    Prices fell slightly after data showing U.S. manufacturing
output rebounded more than expected in February and recorded its
largest increase in six months, in the latest sign that economic
activity is gaining momentum after being dampened by severe
weather. 
    "It's going to be an increasing challenge for the Fed to
keep short-term rates low, and I think they will succeed during
this period when we continue to see mushy economic data. But
beyond that, once we start seeing more solid growth, then we
will start seeing more volatility at the front-end of the
curve," said McCarthy.
    The Fed will buy between $2.25 billion and $2.74 billion in
notes due 2021 to 2024 on Monday as part of its ongoing
purchases.
    A New York Federal Reserve gauge of manufacturing in New
York state also rose in March though at a slower rate than
forecast, as new orders and inventories jumped.
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