Yields fall to one-month lows after Powell comments

March 6 (Reuters) – Longer-dated US Treasury yields fell to one-month lows on Wednesday after Federal Reserve Chair Jerome Powell said that continued progress on inflation “is not assured,” though the central bank still expects to reduce its benchmark interest rate later this year.

“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said in testimony to the House Financial Services Committee.

“Powell pretty much straight out said that they’re done with rate hikes. That’s a big risk the market was concerned with,” said Marvin Loh, senior global macro strategist at State Street in Boston.

“Certainly, they feel that policy is restricted enough that it’s going to do its job. It’s just a matter of how long it’s going to take,” Loh added.

Investors are evaluating when the US central bank is likely to begin cutting rates.

Fed funds futures traders see a 70% probability the first cut will come by June, according to the CME Group’s FedWatch Tool.

Friday’s jobs report for February may provide the next clues. It is expected to show that employers added 200,000 jobs during the month, according to economists’ polled by Reuters.

Private payrolls increased by 140,000 jobs last month after rising by an upwardly revised 111,000 in January, the ADP Employment report showed on Wednesday.

Other data on Wednesday showed that US job openings fell marginally in January, while hiring declined as labor market conditions continue to gradually ease.

A Fed survey also found that US economic activity increased slightly from early January through late February.

Will Compernolle, a macro strategist at FHN Financial in New York, said that markets are concerned that growth may “overheat,” but adds that this would only be problematic if inflation is also high.

Thus, next week’s Consumer Price Index (CPI) for February is key for future Fed moves and market sentiment.

“If the employment report comes in mostly as expected it all hinges on Tuesday’s CPI, because that shows whether this strong growth is something to be worried about or whether it is something to celebrate,” Compernolle said.

The CPI is expected to show that headline prices rose 0.4% last month, while core prices gained 0.3%.

Benchmark 10-year yields were last down 3 basis points on the day at 4.108%, and got as low as 4.079%, the lowest since Feb. 7.

Two-year yields gained 1 basis point to 4.552% after earlier dropping to 4.510%, the lowest since Feb. 15. The inversion in the yield curve between two-year and 10-year notes deepened by five basis points to minus 45 basis points.

The amount banks and fund managers lent to the Fed in its reverse repurchase agreement facility ticked up on Wednesday to USD 456.85 billion.

(Reporting By Karen Brettell; Additional reporting by Herbert Lash in New York; Editing by Sharon Singleton and Diane Craft)