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Dovish Federal Reserve speakers and a strong 10-year note auction helped bring Treasury yields down from two-week highs on Wednesday, after optimism that the United States would reach a trade deal with China had earlier boosted risk appetite. Another clutch of Fed policymakers said on Wednesday they would be cautious about raising interest rates without getting a better handle on how growing risks to an otherwise solid US economic outlook could play out.

It comes after Fed Chairman Jerome Powell said on Friday he was aware of the risks of an economic slowdown and would be patient and flexible in policy decisions this year. Minutes from the Fed's December meeting released on Wednesday also showed that a range of policymakers said they could be patient about future interest rate increases and a few did not support the central bank's rate increase that month.

"The FOMC minutes are on the dovish side as most of the Fed board felt they could be patient about further rate hikes," said Tom di Galoma, a managing director at Seaport Global Holdings in New York. "This certainly throws a March tightening out the window."

Benchmark 10-year notes gained 1/32 in price on the day to yield 2.714 percent, after earlier rising to 2.747 percent, the highest since December 28.

Market volatility has boosted expectations that the US central bank will not raise rates this year even though the Fed has signalled two hikes are likely.

Investors will look for new clues on interest rate policy when Powell speaks on Thursday.

Strong demand for a $24 billion in 10-year notes on Wednesday also sent yields lower, a day after the Treasury Department held a weak $38 billion auction of three year notes.

Direct bidders, which includes some central banks and large fund managers, bought the largest share of the sale since May 2015.

The government will also sell $16 billion in 30-year bonds on Thursday.

Benchmark yields hit their highest levels this year earlier on Wednesday on optimism of a trade deal between the US and China, which boosted stocks and reduced demand for safe haven US debt.

Chinese and US teams ended trade talks in Beijing on Wednesday that lasted longer than expected and officials said details will be released soon, raising hopes of avoiding an all-out trade war that could badly disrupt the global economy.

Copyright Reuters, 2019


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