May 2, 2019 / 1:36 PM / 17 days ago

TREASURIES-Yields higher as Fed seen less likely to cut rates this year

    * Traders cut bets on rate cut this year
    * Worker productivity improved in first quarter
    * Jobs data for April on Friday in focus

    By Karen Brettell
    NEW YORK, May 2 (Reuters) - U.S. Treasury yields were
slightly higher on Thursday as investors continued to absorb
comments from Federal Reserve Chairman Jerome Powell on
Wednesday that were seen as more bullish on inflation and the
economy than expected.
    Powell said the drop in inflation this year may be due to
transitory factors and that economic and job growth has been
stronger than the committee expected.             
    His comments came after the Fed meeting statement took a
more cautious tone on subdued inflation.
    “We’re still trying to figure out where the new range is
after the Fed,” said Tom Simons, a money market economist at
Jefferies in New York.
    Interest rate futures traders see a reduced chance of a rate
cut this year after Powell's comments. They are now pricing in a
54 percent chance of a rate cut by December, down from 64
percent before the Fed meeting statement, according to the CME
Group’s FedWatch Tool.
    Given the focus on inflation, the next major catalyst that
will give clues on Fed policy will be consumer price inflation
data on May 10.
    “We’re either going to confirm that we should be taking
those rate cut bets off the table, or if it comes in
disappointing, then maybe those flood back in,” said Simons. 
    Bonds were little changed on data on Thursday showing that
U.S. worker productivity increased at its fastest pace in more
than four years in the first quarter, depressing labor costs and
suggesting inflation could remain benign for a while.             
    Jobs data for April being released on Friday will be closely
watched for further indications of wage pressures and the
strength of the labor market.
    U.S. private employers added 275,000 jobs in April, well
above economists' expectations's and the most since last July,
the ADP National Employment Report showed on Wednesday.

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