Fed minutes released at 2 p.m. Eastern
Treasury yields were largely unchanged ahead of the Fed minutes from the June meeting that could give investors insight into how central-bank officials are lining up in the hawks-vs.-doves debate amid deteriorating inflation.
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The yield for the benchmark 10-year Treasury notesteadied at 2.350%. The 2-year note's yieldadded 1.2 basis point to 1.422%, while the yield for the 30-year bondfell 0.3 basis point to 2.863%. Bond prices go up when yields go down; one basis point is one one-hundredth of a percentage point.
North Korea tested an ICBM long-range missile (http://www.marketwatch.com/story/north-korea-claims-successful-test-firing-of-an-icbm-2017-07-04) that could potentially reach Hawaii and Alaska, triggering geopolitical jitters. In response, the U.S. and South Korea launched a joint military exercise. But bond markets showed little reaction to the escalation of hostilities.
"While North Korea's military ambitions are a background threat for markets, we don't think that this particular geopolitical event is at the stage yet where it will cause a spike in volatility. Far more important at this stage of the economic cycle is what global central bankers will do next," wrote Kathleen Brooks, research director at City Index.
It's why investors will closely eye the Fed minutes release at 2 p.m. Eastern time on Tuesday.
With weakening inflation an ever-present concern as Fed officials look to hike rates and taper the balance sheet at the same time, traders will eye any sign of dissent or disagreement over the central bank's plan to tighten policy. Minneapolis Fed President Neel Kashkari, a voting member and a well-known dove, cast his vote against a June rate hike (http://www.marketwatch.com/story/fed-raises-rates-and-sets-plan-to-shrink-balance-sheet-this-year-2017-06-14) on concerns that slack lingered in the labor market.
Fed officials have justified their tightening stance on the Phillips Curve, an economic theory that states that if unemployment falls inflation will ultimately rise. But a number of analysts said the curve is flat or nonexistent as wage growth has stagnated. The nonfarm-payrolls employment numbers could go some way toward resolving the debate.
See:Why hiring in the U.S. is slowing and will continue to slow. (http://www.marketwatch.com/story/why-hiring-in-the-us-is-slowing-and-will-continue-to-slow-2017-07-02)
Elsewhere, the IHS Markit purchasing manufacturer's index June reading for the eurozone was changed to a higher 56.3 in June from 56.8 in May. A number above 50 suggests a boost to industrial activity, while a number below that level suggests a decline. Despite the fall, PMI figures for the last three months grew at the fastest pace in six years on a quarterly basis.
The improving economic data could put the European Central Bank in a position where it is comfortable with ending its bond-buying program by 2017.
Benoît Curé, a member of the ECB's executive board, said that "the governing council has not been discussing changes in our monetary policy, that may come in the future, but it hasn't come yet." His comments came after senior ECB officials talked down Mario Draghi's hint at a possible shift away from years of monetary easing.
German 10-year government bondsand French 10-year government bondswere unchanged for the day.
See: 'Macron effect' helps lift eurozone PMI in June ()
(END) Dow Jones Newswires
July 05, 2017 10:54 ET (14:54 GMT)