The U.S. Treasuries strengthened Thursday as crude oil prices fell more than 2 pct intra-day on rising US crude inventories, a stronger dollar and surging output from Iran to Europe and Asia. The yield on the benchmark 10-year Treasury note which moves inversely to its price fell 2bps to 1.864 pct and the yield on the short-term 2-year Treasury bond dipped 1bp to 0.896 pct by 1200 GMT.
The U.S. bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Federal Reserve's target. Today, crude oil prices fell more than 2 pct on rising US crude inventories, a stronger dollar and surging output from Iran to Europe and Asia. The US Energy Information Administration (EIA) published data showing an unexpected 1.31 million barrel rise in US crude stocks to 541.29 million barrels. Iran’s oil exports are set to jump nearly 60 pct in May from a year ago to 2.1 million barrel per day (bpd). The rises suggest that the country’s logistical problems following years of sanctions have been overcome or were less severe than thought. Meanwhile, the International benchmark Brent futures fell 2.31 pct to $47.88 and West Texas Intermediate (WTI) declined 1.99 pct to $47.23 by 1030 GMT.
In the early Asian session, the U.S bonds plunged after minute release from the April FOMC meeting that indicated policymakers were in support of a move to raise rates in June if the economy supported it. The FOMC in its April 26-27 meeting minutes showed quite a hawkish view of Fed officials. This indicates that several participants believed in April that it is appropriate to raise rates in June if the incoming data indicated a rebound in the economy. On balance, these minutes go a long way in uncovering sentiment not very much reflected in the April FOMC statement. On balance, this release should go a long way in making the June meeting a live event, something that was seen as less likely in the wake of the April meeting. However, given the need for data to cooperate as the meeting approaches, nothing is certain. Nevertheless, we continue to expect only 50bps worth of tightening from the FOMC in 2016, regardless of whether or not they choose to act in June.
Markets now look forward to jobless claims, Philadelphia Fed manufacturing and Conference Board leading economic indicators to be released later today. Meanwhile, S&P 500 Futures fell 0.22 pts to 2,037 by 1210 GMT.
