March 22, 2017 / 7:19 PM / 3 years ago

TREASURIES-Bonds gain as fiscal stimulus seen unlikely near term

 (Adds quotes, updates prices)
    * Bonds gain as fiscal stimulus seen delayed
    * Investors focusing on Washington reforms
    * Oil price declines lowers inflation expectations

    By Karen Brettell
    NEW YORK, March 22 (Reuters) - U.S. Treasury yields fell on
Wednesday as investors reduced expectations that the Federal
Reserve is likely to adopt a faster path in raising interest
rates and any new fiscal stimulus is seen as unlikely in the
    President Donald Trump and Republican congressional leaders
appeared on Wednesday to be losing the battle to get enough
support in the House of Representatives to pass their Obamacare
rollback bill.             
    Delays in passing domestic reforms including healthcare are
seen as likely to push back any new fiscal stimulus, which
investors had anticipated would boost growth and possibly lead
to faster than previously expected rate increases.
    “People are losing confidence in a swift moving set of
congressional reform,” said Ian Lyngen, head of U.S. rates
strategy at BMO Capital Markets in New York.
    Benchmark 10-year notes             gained 11/32 in price to
yield 2.40 percent, down from 2.43 percent on Tuesday. 
    The 10-year yields earlier dropped to 2.37 percent, the
lowest since Feb. 28. They have fallen from 2.63 percent on
March 14.
    “The bond market had repriced higher in terms of yields
looking at what the Fed reaction function might be given that we
might have fiscal stimulus down the road,” said Chirag Mirani,
head of U.S. rates strategy at UBS.
    Now, “the market is going through a realization that this
may take some time or that it may not be the version it was
expecting,” Mirani said.
    Oil prices also dipped on Wednesday as rising crude stocks
in the United States underscored an ongoing global fuel supply
overhang despite an OPEC-led effort to cut output.             
    That has also reduced inflation expectations, which is also
seen as delaying further Fed tightening.
    “Oil prices have been declining and that’s helped push
market-based inflation expectations lower,” said Mirani.
    Speeches by Fed officials are in focus this week for any new
indications about future interest rate policy.
    Fed Chair Janet Yellen is due to speak at a community
development conference on Thursday.
    Durable goods data and manufacturing data on Friday will
also be a focus for investors.    

 (Editing by Nick Zieminski)
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