BOND REPORT: Treasury Yields Steady Ahead Of Fed Minutes
August 16 2017 - 10:33AM
Dow Jones News
By Sunny Oh
The Federal Reserve will release minutes from the July policy
meeting at 2 p.m. Eastern
Treasury yields were flat in early Wednesday trade as investors
awaited the release of the Federal Reserve's minutes from the July
policy meeting, which is widely expected to center on a balance
sheet wind-down, a form of monetary tightening that could drive
yields higher.
The 10-year Treasury yield was mostly unchanged at 2.272%.
Likewise, the 30-year Treasury yield was flat at 2.852%. The 2-year
Treasury note yield showed the biggest move, falling 1.2 basis
point to 1.342%. Bond prices move in the opposite direction of
yields.
Traders kicked off their day as a weaker-than-expected reading
for housing starts data. Builders broke ground on less homes in
July, running at an 1.16 million annual rate, and falling below the
MarketWatch consensus forecast of 1.23 million. Though notoriously
volatile and frequently revised, the number marks a 4.8% drop from
June's pace.
See: Housing starts stumble in July as new-home construction
churns gradually higher
(http://www.marketwatch.com/story/housing-starts-stumble-in-july-as-new-home-construction-churns-gradually-higher-2017-08-16)
But most investors were gearing up for the release of the
minutes from the July 17 meeting by the policy-setting Federal Open
Market Committee set to be released at 2 p.m. Eastern Time.
Analysts expect some discussion of the balance sheet tapering to
help set it up for its start on September. New York Fed President
William Dudley
(http://www.marketwatch.com/story/feds-dudley-wants-to-keep-raising-interest-rates-slowly-2017-08-14)and
Chicago Fed President Charles Evans
(http://www.marketwatch.com/story/feds-evans-backs-balance-sheet-reduction-but-ambivalent-toward-another-rate-hike-2017-08-09),
voting member, both backed for the process to begin soon.
In addition, market participants were hoping for senior Fed
officials to offer further clarification on the inflation outlook.
A befuddling absence of wage pressures amid strong jobs growth has
economists worrying that the central bank will continue to miss its
2% inflation target, where the Fed might be more comfortable with
an aggressive pace of monetary tightening.
"There's going to be a specific focus on inflation. I know Janet
Yellen has insisted inflation is transitory, but investors will see
what the other Fed's member views are on that topic," said Charlie
Ripley, investment strategist at Allianz Investment Management.
Dallas Fed President Robert Kaplan, a voting member said on
Tuesday night he would "like to see more evidence that [the central
bank is] making progress on our 2% inflation objective," in an
interview with American Banker, a trade publication
(https://www.americanbanker.com/news/10-questions-for-dallas-fed-president-robert-kaplan).
But like other members of the FOMC he said the wind-down of the
Fed's portfolio of government paper and mortgage-backed securities
should start soon.
Investors also focused on reports that European Central Bank
President Mario Draghi won't use the Fed's meeting in Jackson Hole,
Wyo., to signal the beginning of the end for its bond-buying
program, according to Reuters
(http://www.reuters.com/article/us-ecb-policy-draghi-idUSKCN1AW0LF?il=0).
Instead, October was punted as the most likely date for an
announcement of a major policy shift, the report said.
But the bond bulls appeared to take little notice, as the German
10-year Treasury yield fell 2.3 basis points to 0.459%, meaning a
modest selloff in government paper. If the ECB rolls back its
monetary easing it could result in higher yields for European
paper, and have knock-on effects for the U.S. bond market.
Widening or narrowing interest-rate differentials, and therefore
also for yields, can spark large movements of money between
countries because investors are looking for higher and more
diversified returns across the world.
(END) Dow Jones Newswires
August 16, 2017 10:18 ET (14:18 GMT)
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