US Treasury prices added to gains Wednesday and followed European bonds higher, pushing yields lower, aided by a run of weaker inflation numbers. Still, the prices were off their highs of the day with the Federal Open Market Committee’s expected rate decision of a 25 basis-point cut, and Chair Jerome Powell’s press conference awaited at the end of the session.
August housing data in the US beat expectations with the starts surging 1.36 million versus an expected 1.25 million. Building permits jumped 1.42 million against the 1.3 million consensus.
The Treasury yields were about 3 to 3.5 basis points lower with the 10-year Treasury rate near 1.78% from 1.814% Tuesday, while the 2-year yield was near 1.703% from 1.737%. The UK Gilt yield dropped 4.4 points to 0.646%, with the German Bund rate off 2.8 bps to -0.506%. The Japanese government bond rate closed 3 points lower at -0.196%.
Equities were mixed, with European bourses marginally firmer while US futures leaned lower. Chinese shares rallied on news that the National Development and Reform Commission of the People’s Republic of China announced infrastructure investment. The Nikkei slipped lower.
European Commission President Jean-Claude Juncker said he sees “palpable” risk of a no-deal Brexit. Spain is headed for new elections in November.
As planned, the New York Fed conducted an overnight repurchase agreement operation from 8:15 am to 8:30 am ET in an effort to help maintain the federal funds rate within the 2% to 2.25% range.
The operation saw high demand as the Fed took $75 billion against the $80.1 billion submitted by primary dealers. The Fed accepted $51.6 billion in Treasuries at a 2.1% rate, along with $22.8 billion in mortgage-backed securities and $700 million in agency debt.
The FOMC is expected to ease, but the CME Group fed fund futures recently were pricing in a 61% chance of a cut versus 88% a week ago, with 38.8% anticipating no change.
The Mortgage Bankers Association said applications dipped 0.1% in the week of Sept. 13 from the previous period.
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