TREASURIES-U.S. bond yields rise after Fed minutes signal slow rate hike

Wed May 21, 2014 4:35pm EDT

Related Topics

* Fed minutes suggest slow rate hikes
    * Short-dated notes favored on Fed outlook
    * Profit-taking keeps longer-dated bonds weak

 (Updates prices, adds analyst comments)
    By Sam Forgione
    NEW YORK, May 21 (Reuters) - Medium- and longer-dated U.S.
Treasuries yields rose on Wednesday after minutes from the
Federal Reserve's latest policy meeting suggested the central
bank would be slow in raising interest rates.
    Minutes from the Fed's April policy meeting said the central
bank's staff presented several approaches to raising short-term
interest rates, but said the discussion was simply "prudent
planning" and not a sign rate hikes would come any time soon.
    Traders viewed certain comments as more dovish, including
that the housing sector could face a persistent slowdown and
that some meeting participants said it was too early to confirm
the economy was moving toward sustained above-trend growth.
 
    "The Fed's going to stay behind the curve" in raising rates,
said Chris McReynolds, head of U.S. Treasury Trading at Barclays
in New York, after the release of the minutes.
    Anticipation that the Fed minutes would be dovish led
traders to sell 30-year Treasury bonds and favor two- and
five-year Treasury notes before the release of the minutes,
since a slower hike in interest rates would protect
shorter-dated notes from price losses. 
    Shorter-term Treasury notes, which are more vulnerable to a
hike in interest rates, had also become more insulated since New
York Federal Reserve President William Dudley said Tuesday that
the central bank would likely be "relatively slow" in hiking
rates, traders said. 
    "Dudley's comments were a perfect preface for what we saw in
the minutes today," said Millan Mulraine, deputy chief U.S.
economist at TD Securities in New York. 
    Much of the price weakness in the long end of the Treasuries
market had taken place in the runup to the minutes. Traders said
that profit-taking after last week's rally in 10-year notes and
30-year bonds had also weakened prices on those securities.
    Remaining short bets against Treasuries also kept prices
weak and prevented 30-year bond yields from nearing last week's
low of 3.3 percent and 10-year notes from nearing a low of 2.473
percent, traders said.
    Prices on 30-year Treasury bonds were last down
23/32 to yield 3.41 percent, from 3.375 percent late Tuesday.
Benchmark 10-year Treasury notes were last down 7/32
in price to yield 2.536 percent, from 2.509 percent late
Tuesday. 
    Prices on shorter-dated notes were mostly flat, meanwhile,
showing traders' preference for the notes compared to
longer-dated bonds. Prices on two-year Treasury notes 
traded flat to yield 0.34 percent, from 0.33 percent late
Tuesday. 
    Traders also said that strength in U.S. stocks limited
safe-haven bids for Treasuries. U.S. stocks held gains after the
release of the minutes, erasing the previous day's broad
selloff. The S&P 500 last ended up 0.81 percent.

 (Reporting by Sam Forgione; Editing by Dan Grebler and Chizu
Nomiyama)
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