July 18, 2019 / 6:53 PM / 5 months ago

TREASURIES-U.S. yields fall as Fed's Williams argues for early stimulus

 (Recasts with comments by Fed's Williams; updates prices)
    * Philly Fed index highest since July 2018
    * Euro, bonds fall on report ECB may change inflation goal

    By Karen Brettell
    NEW YORK, July 18 (Reuters) - U.S. Treasury yields declined
on Thursday after a Federal Reserve official said policymakers
need to add stimulus early to address too-low inflation when
interest rates are near zero and said they cannot wait for
economic disaster to unfold.
    The remarks by the president of the New York Fed, John
Williams, that policymakers cannot afford to keep their "powder
dry" and wait for potential economic problems to materialize in
those circumstances come less than two weeks before the Fed's
next policy meeting.             
    In recent weeks, Fed policymakers have identified a host of
concerns they think could end what is now the longest U.S.
economic expansion on record. Chief among those concerns include
the prolonged U.S.-China trade war, which is denting business
confidence, a global manufacturing slowdown and inflation below
the Fed's target of 2% a year.
    Benchmark 10-year notes             were last up 7/32 to
yield 2.038%, down from 2.061% late Wednesday.
    The U.S. central bank is seen as certain to cut rates on
concerns about global growth when it meets on July 30-31.
    “We haven’t really seen global growth pick up in a material
way, trade volumes are still quite low, there are certainly dark
clouds on the horizon and those have not gone away,” said
Gennadiy Goldberg, an interest rate strategist at TD Securities
in New York.
    Interest rate futures traders are now pricing an equal
probability of the Fed's cutting its rate by 25 basis points or
50 basis points, according to the CME Group’s FedWatch tool.
    Yields rose earlier on Thursday after data showed that a
Philadelphia manufacturing index rebounded strongly in July,
adding to recent data that shows an improving U.S. economy.
    The Philadelphia Fed said factory activity in the
mid-Atlantic region reached its highest level in a year,
following other recent surveys on manufacturing that have
suggested the struggling sector was stabilizing.             
    Yields have risen from more than 2-1/2-year lows reached
earlier this month, and the yield curve has steepened as jobs,
inflation and retail sales data show that the U.S. economy is
    The yield rise has been capped, however, by dovish global
central bank policy.
    The euro and government bond yields across the single
currency bloc fell on Thursday, following a report by Bloomberg
News that European Central Bank staff are studying a potential
change to the bank's inflation goal of "near 2%."             
    The report quoted sources as saying ECB staff were studying
the bank's approach informally, including whether a more
flexible target might be more appropriate in the post-crisis era
- potentially allowing inflation to stay higher for a certain

 (Reporting by Karen Brettell
Editing by Leslie Adler)
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