US treasuries rise on dim inflation fears

New York, May 22: US treasuries edged up on Monday with long-dated issues outperforming for the fourth straight session, as investors bet inflation pressures will remain muted and the Fed’s avalanche of rate cuts will soon end. A stream of steep Federal Reserve interest rate cuts this year have lopped 2.5 percentage points off key overnight bank lending rates in less than five months, lifting hopes for an economic rebound by the second half of the year.

The prospect of stronger economic growth had reawakened some inflation concerns in the bond market. But reassurance from Fed policy makers that price pressures are still contained has dampened those fears, giving a lift to inflation-wary longer-dated Treasury notes and bonds in recent sessions. “The price action indicates lower inflation concerns and a view than the Fed may soon be done,” said Michael Cloherty, fixed income strategist at Credit Suisse First Boston. After cutting half a percentage point off short-dated rates last week, taking the federal funds rate to 4.0 percent, the Federal Open Market Committee said rising unemployment and lower corporate and consumer spending meant inflation was expected to remain contained. “The Fed’s last statement was more explicit on why the Fed didn’t see any reasons for inflation,” said Mr Cloherty.The Fed’s soothing words on inflation were underlined by St Louis Fed President William Poole on Monday. (Reuters)