Treasuries rally amid stocks, dollar fluctuations

Treasuries rallied as minutes from the Federal Reserve’s last meeting indicated officials saw little risk of a sharp increase in inflation, fueling bets interest rates will stay lower for longer. Both the dollar and U.S. stocks fluctuated.

Two-year Treasury note yields tumbled to 0.73 percent at 2:23 p.m. in New York, after holding near the highest level since June. The Bloomberg Dollar Spot Index rose less than 0.1 percent. The S&P 500 Index reversed losses as a rally in financial stocks overshadowed disappointing results from Target Corp. and Lowe’s Cos.

“It’s still a mixed bag with Fed officials still not quite ready to commit to an increase,” said Mark Heppenstall, the Horsham, Pennsylvania-based chief investment officer of Penn Mutual Asset Management. His firm oversees about $20 billion.

“These notes really show that they’re giving the same amount of ammunition to the hawks and the doves. We still have a lot of economic numbers to be released between now and December, so if I had to guess I would say that the earliest we see a hike would be early 2017.”.

Global equities rallied to a one-year high earlier this month as the dollar sank on speculation that uneven growth would put a lid on interest-rate increases. St. Louis Fed chief James Bullard said Wednesday he still sees one hike through 2018. Still, New York Fed President William Dudley and Atlanta Fed chief Dennis Lockhart jolted markets Tuesday by indicating policy makers might lift borrowing costs as soon as next month.

“Members generally agreed that, before taking another step in removing monetary accommodation, it was prudent to accumulate more data in order to gauge the underlying momentum in the labor market and economic activity,” according to the minutes released in Washington on Wednesday.

“A couple of members preferred also to wait for more evidence that inflation would rise to 2 percent on a sustained basis.”

At that meeting, the Federal Open Market Committee left the benchmark interest rate in a range of 0.25 percent to 0.5 percent and noted that “near-term risks to the economic outlook have diminished.”