U.S. Government Bonds Steady After FOMC Minutes

By Akane Otani Features Dow Jones Newswires

U.S. government bonds hovered near the flatline Wednesday ahead of the release of minutes from the Federal Reserve's latest policy meeting.

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The yield on the benchmark 10-year U.S. Treasury note was recently at 2.339%, according to Tradeweb, compared with 2.343% Tuesday. Yields rise as bond prices fall.

With little on the economic calendar early Wednesday, there were few catalysts for swings in the U.S. bond market overnight, analysts said.

Later Wednesday, the Fed is expected to release minutes from its September meeting, where it left interest rates unchanged but signaled it could raise rates once more in 2017.

Those signals have put pressure on government bonds in recent weeks and spurred a jump in federal-funds futures, used by traders to bet on the path of interest rates.

Investors now see a roughly 93% chance of a rate rise by the end of the year, according to data from CME Group, compared with a 41% chance one month ago. Higher rates are likely to dampen the appeal of government bonds, whose fixed returns are worth less in an inflationary environment.

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What will be key to watch in Wednesday's minutes, analysts say, is any language from the Fed that sheds clarity on officials' position around interest rates.

Inflation readings have largely been muted this year, even as the economy has grown and the labor market has continued to strengthen -- puzzling Fed officials and making some investors skeptical the central bank will take a hawkish path in raising rates.

Fed officials including Chicago Fed President Charles Evans have said they would like to see an uptick in inflation before another rate increase.

Write to Akane Otani at akane.otani@wsj.com

U.S. government bonds held steady Wednesday after minutes from the Federal Reserve's latest policy meeting showed most officials believed they will raise short-term interest rates again this year.

The yield on the benchmark 10-year U.S. Treasury note was recently at 2.341%, according to Tradeweb, compared with 2.343% Tuesday. Yields fall as bond prices rise.

Bond yields hovered near the flatline after the Fed released minutes from its Sept. 19-20 meeting, where it left interest rates unchanged but signaled it could raise rates once more in 2017.

Heading into Wednesday afternoon, analysts had said an unexpectedly hawkish tone from Fed officials could pressure the bond market.

Yet Wednesday's minutes were largely in line with what analysts had expected: that policy makers are leaning toward raising interest rates once more this year, although they are continuing to debate whether a streak of soft inflation readings reflects longer-lasting developments, rather than temporary weakness.

"Many participants expressed concern that the low inflation readings this year might reflect not only transitory factors, but also the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted," the minutes said.

As long as the Fed continues to indicate it will move cautiously in tightening policy, bond yields should remain in a narrow range, said Eric Souza, senior portfolio manager for SVB Asset Management. Tepid price increases have helped support Treasurys, whose fixed returns are worth less in an inflationary environment.

"A bit part of the reason why we've been stuck in this range most of the year has been due to the Fed doing a really good job of telegraphing their intentions," Mr. Souza said.

Any signaling suggesting otherwise -- from the U.S. or central banks elsewhere in the world, including the Bank of England and the European Central Bank -- could jolt bond yields, Mr. Souza added.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

October 11, 2017 14:53 ET (18:53 GMT)