Aurelia Butler

NEW YORK (Reuters) – U.S. Treasury futures rose on Monday on expectations that investors will buy bonds as a safe haven during the conflict in the Middle East and as Federal Reserve officials made dovish comments.The U.S. Treasury cash market was closed for a public holiday, but Treasury futures – contracts for the purchase and sale of bonds for future delivery – rose. Prices of 10-year Treasury futures went up to their highest in a week. The implied yield on the benchmark 10-year Treasury in futures markets was at 4.62%. Yields in the cash market stood at 4.78% on Friday.Fed funds futures indicated that expectations of a November interest-rate increase fell to 12% on Monday, from 27% on Friday, CME Group (NASDAQ:CME) data showed. The probability of a December hike fell to 24% from 38%.A deepening conflict between Israel and the Palestinian Islamist group Hamas roiled global markets on Monday and pushed investors toward safe-haven assets, while crude prices surged as investors worried a wider war could hit Middle East oil supply.Treasuries are among the most popular destinations for nervous investors and it would not be surprising to see them bid up on Tuesday due to Mideast turmoil, said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management. He cautioned poor liquidity on Monday made it hard to predict the extent of any potential rally. “Today’s market might just be an over-reaction because not many people are trading … when the market opens tomorrow we’ll get a better feel,” he said.Meanwhile, top ranking Federal Reserve officials indicated that rising yields on long-term U.S. Treasury bonds could steer the Fed from further rate increases.Fed Vice Chair Philip Jefferson said the central bank could “proceed carefully” in deciding whether any further increases are warranted. Dallas Fed President Lorie Logan said the higher returns being demanded by investors to hold long-term U.S. government debt could offset the need for higher rates.Treasury yields – which move inversely to bond prices – have recently surged to their highest levels in more than a decade-and-a-half on concern the Fed would keep rates higher far longer than previously expected, in addition to worries over rising U.S. debt levels. The climb in yields has battered stocks, with the S&P 500 off some 7% from its late-July high.In addition to reducing expectations of further hikes, traders on Monday also increased bets that the Fed may start cutting rates as soon as May next year. The probability of a 25 basis points reduction in May stood at 38% on Monday, compared to 27% at the end of last week. “To some degree there’s a recognition that financial conditions have tightened without the Fed having to take that extra step (of another rate hike),” said Michael Reynolds, vice president of investment strategy at Glenmede. He said the dovish outlook may have helped boost stocks. The S&P 500 reversed losses to close up 0.6% on Monday. “We don’t think (rate increases are) off the table, but incrementally it seems a little less likely in this environment,” he said. More

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(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Asian markets are likely to open higher on Tuesday following a curious day across world markets on Monday that saw virtually every asset class move higher despite the geopolitical tensions and uncertainty sparked by the violence in Israel and Gaza.Safe-haven poster child gold jumped 1.6% for its best day in five months and oil posted its biggest rise in six months, while the dollar relinquished all its early gains and Wall Street recouped 1% losses to end comfortably in the green.The rebound in risk sentiment was largely due to comments from two Fed officials that the recent rise in long-term bond yields and tightening of financial conditions mean the Fed may be done raising rates. Dallas Fed president Lori Logan said “there may be less need to raise the fed funds rate” and Fed Vice Chair Philip Jefferson nodded to the need for the central bank to “proceed carefully” with any further increases in the policy rate.U.S. implied rates fell across the curve, the dollar weakened, and risk assets rose. The U.S. bond market was closed on Monday for the Columbus Day holiday but futures traded, and the 10-year Treasury future posted its biggest rise since March. Lower U.S. yields, implied rates and dollar exchange rate comprise a far more benign set of conditions for Asian and emerging markets than those initially seen on Monday following the events in Israel and Gaza over the weekend.The MSCI Asia ex-Japan index even managed to eke out a slender gain and has now risen three days in a row, its best run in over a month. The Asia and Pacific regional economic data and events calendar is fairly light on Tuesday, with the latest Japanese current account figures, Australian business confidence indexes and Philippines trade balance data the main highlights.The IMF and World Bank annual meetings in Morocco kick into gear on Tuesday, with U.S. Treasury Secretary Janet Yellen, European Central Bank president Christine Lagarde and many other leading global policymakers in attendance. There are also four U.S. Fed officials scheduled to deliver speeches on Tuesday, and markets will be sensitive to whether Raphael Bostic, Christopher Waller, Neel Kashkari, and Mary Daly stick to the line given by their colleagues on Monday.A more hawkish tone could dampen some of the market enthusiasm sparked by Lorie Logan and Philip Jefferson.China’s beleaguered property sector, meanwhile, is under the spotlight again. Country Garden, the country’s largest private lender, may announce a restructuring plan for its offshore debt soon, local media reported on Monday, as it faced another looming debt deadline.Here are key developments that could provide more direction to markets on Tuesday:- IMF, World Bank meetings in Marrakech, Morocco- Japan current account (August)- Fed’s Bostic, Kashkari, Waller and Daly speak (By Jamie McGeever; Editing by) More