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TREASURIES-Profitability, suppressed by soft inflation, Fed's patience at rates

NEW YORK, Jan 31 (Reuters) – US government bond yields fell on Thursday after wage inflation was weaker than expected, boosting the Federal Reserve suggestion, which may have to stop before raising borrowing costs.

The two-year return, which reflects traders' expectations of interest rate increases, fell to a low of almost four weeks – 2.49 percent. The benchmark 10-year yield slightly declined, removing some of the yield curve that took place on Wednesday after the Fed meeting. The two-and-a-ten-year spread was 16.2 basis points lower.

The employment cost index, which is the highest labor cost indicator, increased by 0.7 percent in the fourth quarter, following a 0.8 percent increase in the third quarter, the Labor Department said on Thursday. Higher costs arose because employers increased the benefits to employees, but the growth was still lower than expected.

The data continues to be constantly low in the current credit cycle.

"One of the major principles of the Fed's debate was that if inflation stays quiet … the level of hiking prices is weaker," said Brian Daingerfield, NatWest Markets Macro Strategist.

On Wednesday, Fed fixed interest rates and said the central bank will continue to raise rates this year, pointing to growing uncertainty about the outlook for the US economy. The central bank described the labor market as "continuing to strengthen".

"Given the global economic and financial developments and the downward pressure on inflation, the Committee will be patient in setting future rates, the FED rate committee said in its policy statement.

Benefits were also mitigated by the leap in weekly unemployment claims, which raised concerns about worsening working conditions and overall economic growth.

The initial national unemployment benefit requirements increased by 53,000 seasonally adjusted 253,000 per week ending January 26, which is the highest since September 2017. t Growth was also the highest since September 2017.

"As we look at the average hourly earnings that will soon be printed as part of the VFP, the market sees a somewhat lower than expected wage inflation, as well as a large leap in the demands of the unemployed, which exacerbates the FED's ability to be patient, as evidenced by a clear fact Yesterday's FOMC, ”said Daingerfield.

The Friday weekly farm review is not expected to reflect the rise in unemployment due to the five-week federal closure that ended on 25 January. (Report by Kate Duguid; Editing by Dan Grebler)

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