US treasuries gain on rate-cut outlook

New York, Oct 3: US treasuries rose early on Wednesday, pushing yields on benchmark 10-year notes to the lowest level in three years as they built on the previous day’s gains scored after the Federal Reserve cut interest rates by half a percentage point and signalled more cuts were likely.

“The fact that (the Fed) cut rates yesterday gives a good bid to the market,” said Chris Malone, a trader at Zions First National Bank Capital Markets. Weaker stock index futures also made government debt look more appealing, traders said.

Specifically, there was “good buying in Japan of two - and five-year notes” and there was talk of central bank buying of off-the-run 10-year paper, Malone said.

Expectations for global economic weakness, which would ease inflation, and Bush Administration reassurances that fiscal stimulus would be designed so as to not push up long-term rates have heartened bond investors.

Bond investors fear inflation because it cuts into the value of fixed-income securities.

On Tuesday, the Fed cut its benchmark federal funds rate to 2.5 per cent, its lowest level since 1962.

— Reuters