TREASURIES-Edge higher in Asia as equities dip
TOKYO, April 22 (Reuters) - U.S. Treasuries edged higher in Asian trading on Tuesday, drawing support from falls in regional share prices.
Gains in Treasuries, however, seem likely to be limited given that investors have pared back expectations on the extent of additional Federal Reserve interest rate cuts, said a senior trader for a European bank.
"There is a risk that bond yields could head higher," the trader said, adding that the 10-year yield could climb towards 3.90 percent by the end of April.
The 10-year note rose 6/32 in price to yield 3.708 percent US10YT=RR, down around 2 basis points from late U.S. trading on Monday.
The two-year note was steady with a yield of 2.167 percent US2YT=RR.
In the stock market, Japan's benchmark Nikkei share average fell more than 1 percent .N225 on profit-taking.
U.S. short-term interest rate futures suggest that investors are increasingly betting that concerns about inflationary pressures may prompt the Fed to slow the pace of its rate cuts.
While fed fund futures still imply a 90 percent chance of the Fed lowering its key rate by 25 basis points from the current 2.25 percent at a policy meeting next week, they also show that investors see a 10 percent chance that the Fed will stand pat and keep interest rates steady. FEDWATCH.
Just around a week ago, fed fund futures had been implying a roughly 50 percent chance of the Fed cutting interest rates by 50 basis points, but such expectations for a half-point cut have since disappeared.
Judging from factors such as recent comments on inflation from Fed officials, the Fed might choose to keep interest rates on hold at its policy meeting on April 29-30, said the senior trader for a European bank.
Comments from various Fed officials last week undermined market expectations for a sharp rate cut this month.
Charles Plosser, president of the Philadelphia Fed, warned on Friday against seeing rate cuts as "the solution to most, if not all, economic ills." [ID:nN18374687]
Plosser, one of the Fed's biggest anti-inflation hawks, was the latest in a string of policymakers to warn about the risk of inflation, suggesting another rate cut could be a tough sell.
Investors are also focusing on recent rises in interbank borrowing costs as reflected by the London interbank offered rate (Libor).
Three-month dollar Libor rose on Friday by its biggest daily amount since the credit crisis hit last August as concerns Libor quotes may have been understated combined with doubts about further U.S. interest rate cuts. [ID:nL18702918] (Editing by Chris Gallagher)
