Yields, dollar drop as Fed seen delaying hike

Wed Feb 18, 2015 6:42pm EST
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By Wayne Cole

SYDNEY (Reuters) - The U.S. dollar was nursing losses in Asia on Thursday while bonds held hefty gains as investors scaled back expectations on how fast, and how far, the Federal Reserve might raise interest rates in coming months and years.

Oil prices also tumbled anew as figures showed U.S. crude supplies had grown by five times more than forecast last week. U.S crude CLc1 prices were down $1.78 at $50.36 a barrel early Thursday, from a high of $53.41 the day before.

Equities were relatively calm with much of Asia on holiday, and MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was near flat.

Centres on holiday include China, Indonesia, Malaysia, Philippines, Singapore, Taiwan and South Korea.

Nikkei futures JNIc1 still pointed to an opening gain of over 100 points as the risk of an early tightening in the United States seemed to diminish. [TOP/CEN]

Yields on short-term Treasuries fell by the most since August 2011 after minutes of the Federal Reserve's last meeting showed "many" members wanted to keep rates near zero for longer.

"Our main takeaway from the minutes is that concern about downside risk to inflation has risen and, consequently, the bar for raising rates by June is higher than it was in December," said Barclays economist Michael Gapen.

The shift in expectations was given added impetus by a surprisingly sharp fall in U.S. producer prices which suggested the measure of core inflation followed by the Fed could slow to just 1.2 percent in January, further away from the central bank's target of 2 percent.   Continued...

Passersby walk past an electronic board showing Japan's Nikkei share average (top R) and Asian countries' stock indexes outside a brokerage in Tokyo December 19, 2014.  REUTERS/Issei Kato