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US Treasury yields fall after ECB says rates to stay low until mid-2019

  • The European Central Bank outlined plans to end its massive stimulus program by the end of the year, but said it would hold rates low until summer 2019.
  • The Fed announced a rate hike of 25 basis points on Wednesday and said there could be two more before the end of the year.

U.S. government debt yields dropped Thursday after the European Central Bank said it would hold interest rates low at least until summer 2019.

Though the ECB also outlined its plan to halt its quantitative easing policy by the end of 2018, many on Wall Street interpreted the central bank's rate forecast as more dovish than expected, pushing Treasury yields lower.

"The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary," the ECB said in its statement.

The yield on the benchmark 10-year Treasury note fell to 2.939 percent at 3:21 p.m. ET, while the yield on the 30-year Treasury bond dropped to 3.058 percent. Bond yields move inversely to prices.

"The ECB did what the market generally expected which was to define a time and a direction for QE," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group. "But the euro has sold off despite this because the rates guidance that they provided was more dovish than what the market expected."

The ECB said that if incoming data follows expectations, then its monthly bond purchasing program would be extended through the end of the year, though at a lower pace. Until now, the central bank was scheduled to maintain its QE through September, carrying monthly purchases of €30 billion ($35 billion) of government and private debt.

Those purchases will now be cut to €15 billion during the last three months of 2018. The 10-year German bund yield fell sharply following the statement to 0.42 percent.

"Draghi said they didn't even discuss a date for the end of low rates," Wizman added. "This is about rates guidance, not QE."

Symbol
Yield
 
Change
%Change
US 3-MO
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US 1-YR
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US 2-YR
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US 5-YR
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US 10-YR
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US 30-YR
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The announcement from ECB President Mario Draghi and his colleagues came after the U.S. Federal Reserve announced a rate hike of 25 basis points on Wednesday and said there could be two more before the end of the year, more than previously anticipated.

The Fed changed several phrases from its prior memos, citing more optimistic economic growth and higher inflation expectations.

"Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate," the Fed statement read. "Job gains have been strong, on average, in recent months, and the unemployment rate has declined."

Wednesday's increase in rates moves the funds target rate to 1.75 percent to 2 percent.

U.S. retail sales jumped more than expected in May as consumers purchased automobiles and a range of other goods despite rising gasoline prices, according to the Commerce Department. The government said Thursday that retail sales leaped 0.8 percent last month, the biggest advance since November 2017 and well ahead of economists' expectations of a 0.4 percent increase.

Excluding volatile automobile, gasoline, building materials and food services, retail sales increased 0.5 percent last month after an upwardly revised 0.6 percent increase in April.