September 18, 2019 / 7:25 PM / a month ago

REFILE-TREASURIES-Yields rise as Fed douses hopes for further rate cuts

 (Fixes typo in headline)
    * Fed cuts rates, interest on excess reserves
    * Policymakers indicate further cuts may not occur
    * Trump says there are other options than war with Iran

    By Karen Brettell
    NEW YORK, Sept 18 (Reuters) - U.S. Treasury yields rose on
Wednesday and the yield curve flattened after the Federal
Reserve cut interest rates for the second time this year, but
indicated that further cuts may not follow.
    In lowering the benchmark overnight lending rate to a range
of 1.75% to 2.00% on a 7-3 vote, the Fed's policy-setting
committee nodded to ongoing global risks and "weakened" business
investment and exports.
    New projections showed policymakers at the median expected
rates to stay within the new range through 2020. However, in a
sign of ongoing divisions within the Fed, seven of 17
policymakers projected one more quarter-point rate cut in 2019.
            
    “The market’s interpreting it incrementally a bit hawkish,”
said Jon Hill, an interest rate strategist at BMO Capital
Markets in New York.
    “The fact that they don’t indicate any additional cuts we’ll
take with a grain of salt. Keep in mind that back in June there
was no indication they were going to cut the rest of this year
either, and really the language in the statement remains that
they will act as appropriate,” Hill added.
    Two-year yields            rose to 1.758%, from, 1.680%
before the Fed statement. Benchmark 10-year yields            
increased to 1.793%, from 1.750%.
    The yield curve between two-year and 10-year notes
               flattened to three basis points, from seven basis
points before the Fed statement.
    The U.S. central bank also lowered the interest it pays on
excess bank reserves (IOER) by 30 basis points to 1.80%, after
turmoil in the short-term funding markets this week briefly
pushed the overnight bank-to-bank lending rates above the U.S.
central bank's target range.            
    In the press conference following the interest rate
decision, Chairman Jerome Powell said the Fed will conduct
repurchase operations as needed to keep the rate within its
target range.
    The New York Federal Reserve on Wednesday accepted $75.0
billion in bids, the maximum available, from primary dealers at
an emergency repurchase agreement operation.             
    Earlier, ongoing concerns about last weekend’s attack on
Saudi Arabian crude oil facilities provided a safety bid for
U.S. bonds.
    U.S. President Donald Trump said on Wednesday there were
many options short of war with Iran after Saudi Arabia displayed
remnants of drones and missiles it said were used in the attack
that was "unquestionably sponsored" by Tehran.             
    Concerns about a spike in oil prices harming the economy,
however, have eased since Saudi Arabia’s energy minister said on
Tuesday that the kingdom will restore its lost oil production by
the end of September.             

 (Editing by David Gregorio)
  
 
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