Treasurys Steady Ahead of Fed Minutes
May 24 2017 - 11:06AM
Dow Jones News
By Sam Goldfarb
U.S. government bonds held to a tight range Wednesday as traders
awaited minutes from the Federal Reserve's May meeting.
In recent trading, the yield on the benchmark 10-year Treasury
note was 2.283%, according to Tradeweb, compared with 2.285%
Tuesday.
Yields, which rise when bond prices fall, have climbed this week
in part because of a large volume of new debt sales from both the
Treasury and the private sector.
The Treasury on Tuesday auctioned off $26 billion of two-year
Treasury notes. It will sell $34 billion of five-year notes
Wednesday and $28 billion sale of seven-year notes Thursday.
Meanwhile, corporate bond supply has also been robust as
companies take advantage of relatively calm markets ahead of the
Memorial Day holiday. Firms and banks that underwrite new corporate
debt typically sell Treasurys to hedge against unwanted
interest-rate swings.
The minutes of the Fed's May 2-3 meeting, due Wednesday
afternoon, could provide insight into whether the central bank will
raise interest rates next month for the second time this year and
third time since last December.
For the most part, Fed officials have expressed satisfaction
with the state of the economy, giving investors the sense that they
will raise rates at their June 13-14 policy meeting. That could
allow the Fed to raise rates once more in the fall and possibly
start winding down the Fed's large balance sheet by the end of the
year.
Fed-funds futures, used by investors to bet on the Fed's policy
outlook, recently showed 83% odds that the Fed would raise
short-term interest rates at its June meeting, according to CME
Group, up from 63% a month ago.
Higher interest rates from the central bank reduce money supply
in the broader economy and shrink the value of outstanding
bonds.
On Tuesday, Federal Reserve Bank of Philadelphia President
Patrick Harker, currently a voting member of the Fed's
interest-rate setting committee, said a rate increase in June "is a
distinct possibility," explaining that he didn't put much stock in
recent soft economic data and political turmoil.
Still, a couple of officials this week have expressed
uncertainty about the health of the labor market and concern about
recent inflation data that showed a softening of prices outside of
food and energy categories.
Despite investors' expectations of a June rate increase,
Treasury yields remain well off their peak from earlier this year,
when there was more speculation about four rate increases this year
and an inflation-boosting fiscal-stimulus package from
Congress.
At this point, "nobody's expecting the Fed to hike too fast and
too much, " said Stanley Sun, interest-rates strategist at Nomura
Securities International in New York. Until investors get more
clarity into the Fed's plans for its balance sheet, it is "probably
going to be hard for yield to move too much," he said.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
May 24, 2017 10:51 ET (14:51 GMT)
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