Treasuries Rise on Dovish Comments by New York Fed's Dudley

(Bloomberg) -- Treasuries rose Friday after New York Federal Reserve President William Dudley said “a couple” more interest-rate increases this year “seems reasonable” and that there's no “great urgency” to tighten monetary policy.

Yields were lower by two to four basis points at 3:15 p.m. in New York. Spurred in early U.S. trading by Dudley's comments on Bloomberg Television, the advance continued over the course of the session, pushing yields to session lows as month-end index rebalancing took effect. The yield curve from five to 30 years retraced about half of its initial steepening.

• Month-end flows included foreign and domestic real-money buying in belly of the curve and domestic real-money buying in 10s out to long-end, as well as in front-end; in futures, volumes surged in the five minutes before 3pm ET
• 5s30s curve steepening after Dudley's comments was aided by 10k block trade in 5-year note futures; comments appeared to spark a volume surge in front-end eurodollar futures 
• JPMorgan recommended 7s30s steepener ahead of the next 30-year bond auction on April 12
• Month- and quarter-end were expected to provide support; duration extension estimate for Bloomberg Barclays Treasury Index was 0.07yr vs 0.05yr historical average for March, and stocks outperformed bonds during 1Q, suggesting that funds will re-balance in favor of bonds 
• Among other bullish factors, March 31 end of Japanese fiscal year may clear the decks for rebound in buying of foreign bonds next week; also, April employment report has “a strong bias to disappoint,” BMO strategists said 
• Treasuries held gains even as March Chicago PMI rose unexpectedly while 5-10 year inflation expectation in University of Michigan's Consumer Sentiment survey for March was revised to 2.4%, lowest since December, from an initial 2.2%, which would have been a generational low
• Treasuries faced bearish pressure from the view, expressed in notes by BofA and SocGen, that the market is assigning too-low odds to tax cuts and other pro-growth Trump administration goals
• UST yields are little changed over the month; declines into Fed's March 15 interest-rate increase were erased as the Trump administration's fiscal agenda was imperiled by failure to win congressional approval for health-care reform

--With assistance from Edward Bolingbroke

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Mark Tannenbaum