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.