BOND REPORT: U.S. Government Bond Yields Rise After Fed Minutes
October 17 2018 - 4:02PM
Dow Jones News
By Sunny Oh
U.S. government bond yields rose on Wednesday after the Federal
Reserve released minutes from its September meeting, which
underscored the central bank's intent to raise rates gradually amid
a robust economic backdrop.
The 10-year Treasury note yield rose 2.1 basis points to 3.178%.
The 2-year note yield was up 1.5 basis points to 2.882%, while the
30-year bond yield picked up 1.6 basis points to 3.346%, according
to Dow Jones Market Data. Bond prices move in the opposite
direction of yields.
The Fed minutes showed the majority of senior Fed officials
believed the central bank should raise rates into restrictive
territory
(http://www.marketwatch.com/story/federal-reserve-minutes-indicate-interest-rates-will-have-to-rise-high-enough-to-slow-down-the-economy-2018-10-17).
But some members of the Federal Open Market Committee said if there
were no clear signs of the economy overheating, the central bank
should look to avoid hurting growth through tighter monetary
policy.
Expectations for a December rate increase now stand above 80%,
according to the CME Group
(https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/?redirect=/trading/interest-rates/fed-funds-flash.html).
"It's also now evident that the Fed is close to setting a truly
restrictive policy rate for the first time this cycle -- a debate
within the committee that we expect to hear more on as the December
meeting approaches," wrote Ian Lyngen, head of U.S. rates strategy
at BMO Capital Markets.
President Donald Trump has recently upped the pressure on the
central bank. He labeled the Fed as his greatest threat, adding
that the Fed lacked justification to raise rates amid muted
inflation, in an interview with Fox Business Network
(http://www.marketwatch.com/story/trump-delivers-another-attack-on-fed-calling-central-bank-the-biggest-threat-2018-10-16).
Investors will also watch for developments on Britain's talks to
secure a trade deal before it leaves the European Union. Hopes for
London and Brussels to make headway before the European Council
meeting starting from Wednesday have withered as both sides
struggle to reach an agreement that would allow them to avoid
building border checkpoints between Northern Ireland, part of the
United Kingdom, and the Republic of Ireland. European Council
President Donald Tusk said the EU should make preparations for no
deal.
Read:What is Brexit? And why is it proving so complicated?
(http://www.marketwatch.com/story/what-is-brexit-and-why-is-it-so-complicated-2018-10-17)
Nonetheless, some investors are sanguine on prospects of a
last-minute breakthrough.
"We believe there is a political will to avoid the cliff-edge,"
wrote Michel Martinez, chief Europe economist at Société
Générale.
See: What is Brexit? And why is it proving so complicated
(http://www.marketwatch.com/story/what-is-brexit-and-why-is-it-so-complicated-2018-10-17)
On the data front, September's housing starts fell 5.3%
(http://www.marketwatch.com/story/housing-starts-tick-down-in-another-weak-month-for-residential-construction-2018-10-17)
to an annualized pace of 1.201 million, close to the MarketWatch
consensus estimate of 1.208 million.
As one of the most rate-sensitive sectors, the housing industry
is vulnerable to the climb in bond yields. Its struggles may weigh
on the overall economy's momentum, which has shown few signs of
slowing down.
(END) Dow Jones Newswires
October 17, 2018 15:47 ET (19:47 GMT)
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