TREASURIES-Yields fall after Fed minutes
By Karen Brettell NEW YORK, Aug 22 (Reuters) - U.S. Treasuries yields fell to their lowest levels in over a week on Wednesday after the minutes from the Federal Reserve's August meeting showed that the U.S. central bank was willing to launch further monetary stimulus to support the economy. The minutes showed that the Fed was likely to deliver another round of monetary stimulus "fairly soon," unless the economy improves considerably. The release comes after a dramatic selloff in U.S. government bonds over the past month, as improving economic data released after the Fed's August meeting led investors to reduce bets that the Fed will announce a new bond purchase program when it meets in September. "Markets have priced out some degree of QE3 probability," said Robert Robis, head of fixed income macro strategies at ING Investment Management in Atlanta, Georgia. That said, the minutes show that the Fed wants to maintain maximum policy flexibility over the next few months, and "if there is going to be QE September is the most likely time they would do it, because the next meeting would be October, which is very close to the election," Robis added. U.S. benchmark 10-year Treasury note yields fell 3 basis points after the minutes were released to 1.71 percent, the lowest level since Aug. 14 and below technical resistance at 1.72 percent, the notes' 100-day moving average. Wednesday's move was the biggest daily drop in the 10-year yields since early June. Chances the Fed will launch a third round of money printing have risen slightly over the past month to 60 percent, according to a recent Reuters poll that also showed economists lowering economic growth expectations for this year and next. . Investors will now be closely scouring Fed Chairman Ben Bernanke's speech at the central bank's annual conference in Jackson Hole, Wyoming, at the end of this month for signs of whether the bank will act in September. "The risk would be that the Fed does nothing," said Robis. "The fact that equity markets are still holding their gains and credit markets are performing well is a sign that people believe the Fed will provide support." Treasuries had also gained in price before the Fed minutes after Japanese trade data renewed worries about the sluggish pace of global growth, feeding a safety bid for the bonds. "At least a few investors still believe that the economy may have some rough winds ahead and that the global economy might derail the optimism," said Kevin Giddis, head of fixed income capital markets at Morgan Keegan in Memphis, Tennessee. Investors were also on edge as Greece was beginning a series of meetings with European officials aimed at secured more time to push through reforms, but uncertainty lingered over the effectiveness of Greek Prime Minister Antonis Samaras' European charm offensive.
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