December 17, 2018 / 7:22 PM / 8 months ago

TREASURIES-Bond prices up on weak stocks before Wednesday's Fed decision

 (Adds stock moves, updates prices)
    * Fed expected to raise interest rates on Wednesday
    * Rate outlook for 2019 in focus

    By Karen Brettell
    NEW YORK, Dec 17 (Reuters) - U.S. Treasury prices gained on
Monday as weak stocks boosted demand for the low-risk debt ahead
of Wednesday's conclusion of the Federal Reserve's two-day
meeting at which the U.S. central bank is widely expected to
raise interest rates.
    U.S. stocks slid 1 percent on Monday, weighed down by the
retail and health sectors.             
    Turbulent stock markets and slowing international growth
have raised speculation that the Fed needs to pause its
tightening cycle or risk harming the U.S. economy.
    With a rate hike this week seen as all but certain,
investors will be focusing on the Fed's outlook and how many
rate increases are likely next year.             
    "The ball is rolling towards dovish expectations even after
they do the hike," said Jim Vogel, an interest rate strategist
at FTN Financial in Memphis, Tennessee.
    Strong U.S. data may, however, make the U.S. central bank
less likely to adopt the more dovish tone that many investors
are expecting.
    "The odds that people are going to be disappointed are
really fairly high, because it really was just three months ago
that the Fed said, 'You know, we probably need to get a little
bit more hawkish than we have been,'" Vogel said.
    In September when the Fed last raised interest rates, it
forecast at least three more years of U.S. economic growth.
    Fed Chairman Jerome Powell also said in October that the key
interest rate was probably still a "long way" from a so-called
neutral level and that the Fed might even tighten policy beyond
that, before saying last month that the policy rate was "just
below" neutral.             
    Benchmark 10-year notes             gained 9/32 in price to
yield 2.859 percent. The yields have fallen from a seven-year
high of 3.261 percent on Oct. 9.
    The closely watched yield curve between two-year and 10-year
notes                was last at 16 basis points, after
shrinking to less than 10 basis points earlier this month for
the first time since the financial crisis.
    An inversion of the two-year, 10-year yield curve would be
viewed as a signal that a recession is likely to occur around 18
to 24 months later.
    U.S. President Donald Trump said on Monday it is
"incredible" that the Fed "is even considering" raising rates
again. He has previously said that continued rate hikes may harm
U.S. economic growth.             

 (Reporting by Karen Brettell; Editing by Steve Orlofsky and
Richard Chang)
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