Treasurys Strengthen as Fed Minutes Show Policy Debate -- Update
August 16 2017 - 4:24PM
Dow Jones News
By Sam Goldfarb
U.S. government bonds rebounded Wednesday after two days of
declines as minutes from the Federal Reserve's July meeting
reaffirmed that some officials are hesitant to raise interest rates
while inflation remains subdued.
The yield on the 10-year Treasury note settled at 2.224%,
compared with 2.264% Tuesday. Yields fall when bond prices
rise.
Fed officials meeting in July were divided about how to respond
to sagging inflation, the minutes showed. Some felt the Fed could
"afford to be patient" in raising interest-rates, while others
worried there could be a spurt in inflation that could be difficult
to control.
While not "terribly unexpected," the minutes cast further doubts
on whether Fed officials will raise interest rates again this year
"because of their concern about the path that inflation was
taking," said Donald Ellenberger, head of multisector strategies at
Federated Investors.
Soft inflation helps boost Treasurys by preserving the
purchasing power of their fixed payments and decreasing the
likelihood that the Fed will raise interest rates.
Wednesday's minutes provided the latest sign of disagreement
among Fed officials.
On Monday, New York Fed President William Dudley said in an
interview with the Associated Press that he expected a third
interest-rate increase this year partly because rising asset prices
showed a need to do more to tighten financial conditions. That came
after Federal Reserve Bank of Dallas President Robert Kaplan said
Friday that he wanted to "see more evidence" of firming inflation
before raising interest rates.
After a modest two-day selloff, Treasurys initially got a boost
Wednesday from a Reuters report that European Central Bank
President Mario Draghi won't make any major policy announcements
next week when he speaks at the Fed's Jackson Hole Conference.
Reports that Mr. Draghi would speak at the conference had
previously fueled speculation that he might use the occasion to
signal how the central bank might scale back its bond-buying
program, which has helped keep a lid on bond yields globally by
limiting the supply of government debt.
Treasury yields also ticked lower along with U.S. stocks
following reports that two advisory councils to President Donald
Trump were disbanding after Mr. Trump's controversial responses to
the recent violence in Charlottesville, Va.
Signs of turmoil at the White House have, at times, tempered
investors' risk-appetite this year, bolstering bonds as investors
lower their expectations for policies that could spur higher
economic growth and inflation.
Bond prices had declined earlier this week partly in response to
easing tensions between the U.S. and North Korea. Investors also
responded to solid economic data, including a better-than-expected
report on retail sales on Tuesday.
Still, the response from the bond market was relatively muted,
indicating investors remain focused on soft inflation data and
potential economic pitfalls such as looming deadlines for Congress
to extend government funding and raise the debt ceiling.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
August 16, 2017 16:09 ET (20:09 GMT)
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