CORRECTED-TREASURIES-Prices gain before Fed, after Bank of England minutes

Wed Jun 18, 2014 11:07am EDT

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(Corrects release of CPI data in second graph to Tuesday)
    * Prices gain before Fed statement
    * BofE less hawkish than expected, adds to bond bid
    * Yield curve steepens, sparks some short-covering

    By Karen Brettell
    NEW YORK, June 18 (Reuters) - U.S. Treasuries prices rose on
Wednesday as investors evaluated what the Federal Reserve is
likely to say when it releases a statement from its June policy
meeting this afternoon, and after the Bank of England released
minutes that were less hawkish than expected.
    Prices tumbled on Tuesday after a higher-than-expected
consumer price inflation indicator led investors to prepare for
the possibility that the Fed will be open to raising rates
sooner than some had thought.
    Investors have been more wary of central banks becoming more
hawkish since Bank of England Governor Mark Carney surprised
markets last Thursday by saying Britain could become the first
major economy to tighten monetary policy since the 2008
financial crisis. 
    Some of that ebbed on Wednesday after Bank of England
policymakers highlighted the need to increase rates gradually,
boosting U.K. and U.S. government debt and helping stocks.
    "The minutes were less hawkish than what Carney said last
week," said Tom Tucci, head of Treasuries trading at CIBC in New
York.
    Bank of England policymakers also said they were surprised
earlier this month that markets had not priced in a higher
chance of an interest rate rise this year, minutes of their June
4-5 policy meeting showed on Wednesday. 
    The Treasuries yield curve steepened on Wednesday, which
added a bid for bonds to cover bets that the curve would
continue to flatten.
    "Most people are in flattening trades, when it steepens back
there is a short bid," said Tucci.
    Benchmark 10-year notes rose 6/32 in price to
yield 2.63 percent, down from 2.65 percent late on Monday.
Intermediate-dated debt also outperformed, with five-year notes
gaining 5/32 in price to yield 1.72 percent, down from 1.75
percent. 
    The timetable for when each member of the Federal Open
Market Committee expects policy to begin tightening, will be
among the most keenly scrutinized factors on Wednesday, as will
any comments about interest rate hikes or slack in the economy
from Fed Chair Janet Yellen, who is due to speak after the
statement from the meeting is released.
    The Fed is also seen as likely to reduce its U.S. economic
growth estimates for this year, though it may leave expectations
for 2015, when most expect the U.S. central bank to begin
raising rates, unchanged.
    The Fed is also widely expected to cut its bond purchases by
another $10 billion. 
    

 (Editing by W Simon)
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