Bonds News

TREASURIES-Yields rise as expectations of larger rate cut fade

 (Recasts with media report, comments from Fed's Bullard,
updates prices)
    * Wall Street Journal writes that the Fed will cut rates by
25 bps
    * Fed's Bullard said he prefers a 25 bps cut
    * Fed's Williams increased expectations of 50 bp rate cut

    By Karen Brettell
    NEW YORK, July 19 (Reuters) - U.S. Treasury yields rose on
Friday after the Wall Street Journal wrote that the Federal
Reserve is likely to cut rates by 25 basis points when it meets
later this month, after comments by a Fed official on Thursday
raised expectations a larger cut may be on the cards.
    The U.S. central bank is viewed as certain to cut its
benchmark rate at its July 30-31 meeting.
    But Fed officials are not prepared for a 50 basis point rate
decrease, despite increasing market expectations of such a move,
the Journal said, citing recent public statements and interviews
with policymakers. 
    Short-term interest rate markets on Thursday showed that
traders viewed a 50 basis point cut as more likely than a 25
basis point one, following comments by John Williams, vice
chairman of the Fed's rate-setting committee and head of the New
York Fed.
    Williams said that when rates and inflation are low,
policymakers cannot afford to keep their "powder dry" and wait
for potential economic problems to materialize.             
    The odds of a 50-basis-point cut fell, however, after the
New York Fed said later on Thursday that Williams' speech was
not about potential actions at this month’s meeting.
    “The question is, with the timing of it so close to the
beginning of the blackout period, was he trying to express what
his argument will be going into the meeting?” said Lou Brien, a
market strategist at DRW Trading in Chicago.
    Fed officials are unable to speak publicly from Saturday
until the meeting.
    Interest rate futures traders on Friday are pricing for a
76% chance of a 25-basis-point cut and a 24% probability of a 50
basis-point-rate decrease, according to the CME Group’s FedWatch
    Benchmark 10-year notes             fell 2/32 in price on
Friday and yields rose to 2.05%, from 2.04% late Thursday. The
yields rose as high as 2.06% after the Journal report.
    St. Louis Federal Reserve President James Bullard said on
Friday that he would like a 25 basis point cut as it would give
the Fed optionality for later this year.             
    In recent weeks, Fed policymakers have identified a host of
economic concerns, including the prolonged U.S.-China trade war,
which is denting business confidence; a global manufacturing
slowdown; and inflation below the Fed's target of 2% a year.
    Fed Board of Governors Vice Chair Richard Clarida said on
Thursday that policymakers might need to act early to stimulate
the U.S. economy as an insurance policy against rising risks.

 (Editing by Susan Thomas)