A gauge of inflation expectations in the bond market rose to the highest level in nine months as oil prices climbed, supporting the Federal Reserve’s plan to raise interest rates twice this year.
The Fed will hold its benchmark unchanged when it meets Tuesday and Wednesday, futures indicate. The session will give policy makers a chance to either ratify or scale back their stance from their last review in March, when they changed their outlook for rate increases this year to two from four. Officials cited weaker global growth while saying they’re monitoring inflation.
The difference between yields on five-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, widened to 1.57 percent at the end of last week. It was the highest level since July, though short of the central bank’s 2 percent target.
“Don’t enter the U.S. bond market at this time,” said Hiroki Shimazu, the senior market economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest lender. “If we take the recent oil price into consideration, the statement should be hawkish” when the Fed issues its decision, Shimazu said.
Treasuries were little changed, with the benchmark 10-year note yield at 1.88 percent as of 6:45 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in February 2026 was 97 3/4.
Crude oil has risen 65 percent from a 12-year low set in February.
Treasuries fell every day last week, the longest run of declines since November. They have dropped 0.5 percent in April, heading for the first monthly loss this year, based on the Bloomberg U.S. Treasury Bond Index.
U.S. economic data this week will include new-home sales Monday, durable-goods orders Tuesday, gross domestic product on April 28 and personal spending on April 29.
The U.S. is scheduled to sell two-year notes Monday and five-year debt Tuesday. It plans to auction seven-year debt and two-year floating-rate debt on April 28. It’s staying out of the market on April 27, the day of the Fed decision.
The Fed will probably hold its rate unchanged at least through June and make one increase before year-end, said Tsutomu Komiya, a bond investor in Tokyo at Daiwa Asset Management, which had $119 billion in assets as of March 2015, the most recent figure on the company’s website.
Ten-year yields may rise to 2 percent by year-end, a level that offers “good value,” Komiya said.
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