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Treasury Yields Too Low? Check Out Citi Surprise Index, Investors who say yields are too low, given what’s happening in the U.S. economy, should look at the Citi Economic Surprise Index.

It shows U.S. economic data are failing to meet expectations by the most in 2 1/2 years. The figure gels with a Federal Reserve statement Wednesday signaling policy makers’ willingness to keep interest rates low for longer, given risks to the economy ranging from a stronger dollar to wages and housing.

Data undershooting people’s expectations can help keep a lid on yields,” said Peter Jolly, the Sydney-based head of market research at National Australia Bank Ltd., the nation’s largest lender by assets. “Though it’s surprising to the downside, it’s not like it’s collapsing.”

The U.S. 10-year yield fell one basis points, or 0.01 percentage point, to 2.07 percent as of 6:43 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 2 percent note due in February 2025 rose 3/32, or 94 cents per $1,000 face amount, to 99 11/32.

Treasuries were also supported as oil fell for a second day in the U.S. The price of West Texas Intermediate crude for March delivery dropped as much as 4.6 percent to $49.73 a barrel in electronic trading on the New York Mercantile Exchange. It recovered to $50.07, down 4 percent.

Bond bears who predict a pickup in U.S. growth have pushed yields up from January’s low of 1.64 percent.

Fed Minutes

U.S. government debt has plunged 2.1 percent in February, headed for its worst month in five years, Bank of America Merrill Lynch indexes show.

Ten-year yields are still less than the average of 3.28 percent for the past decade. They may rise to 2.5 percent by Dec. 31, National Australia’s Jolly said.

Many Fed officials “indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward” keeping rates near zero “for a longer time,” according to minutes of the Jan. 27-28 policy meeting.
Investors are looking to congressional testimony next week by Fed Chair Janet Yellen for signs as to the timing of a rate increase.

Policy makers will raise borrowing costs in about 6 1/2 months, a Morgan Stanley index shows.
The Fed may not wait that long, said Tony Crescenzi, a market strategist at Pacific Investment Management Co. based in Newport Beach, California.

Rate Expectations

U.S. economic growth will be in the high 2 percent area, which will help reduce unemployment, he said Wednesday on Bloomberg Television.
“June is still live as a date for the Fed to move,” Crescenzi said. “The job story has been good. That’s the precondition for a hike.”

Reports over the past month on durable goods orders, gross domestic product, factory orders and retail sales all failed to meet economists’ expectations.
The minutes highlighted concern that inflation remains too low. A gauge of expectations for inflation starting five years from now, based on Treasury securities, dropped to as low as 1.75 percent last month, data compiled by the Fed show.

The U.S. Treasury will auction $9 billion of 30-year inflation linked securities later Thursday. A sale of the bonds on Oct. 23 received the highest demand on record from a group of investors that includes foreign central banks. The TIPS yielded 0.985 percent

Jobs Data

The outlier in last month’s data was the monthly employment data that showed payrolls rose more than forecast in January, capping the strongest three months of jobs growth in 17 years. The report was on Feb. 6, after the Fed’s January policy meeting.

“The Fed, as eager as they are to raise interest rates, are highly suspect at doing so prematurely,” said Mark Luschini, the president of Janney Capital Management, which is based in Pittsburgh. “There is a majority of members who host a fear that doing so prematurely may either choke off the recovery they’ve worked so hard to sustain, or secondly, that they might have to turn around and cut,” he said Wednesday on Bloomberg Television.