August 20, 2014 / 3:25 PM / 3 years ago

TREASURIES-Prices drift lower ahead of Federal Reserve minutes

NEW YORK, Aug 20 (Reuters) - U.S. Treasury bond prices edged lower on Wednesday as investors consolidated gains made last week and prepared for the release of the minutes from the Federal Reserve's last meeting at the end of July for any clues on future U.S. monetary policy.

A seasonal slowdown in trading and a lack of U.S. economic data to provide impetus for taking big positions contributed to a lackadaisical morning session, traders and strategists said.

"Today the market has been consolidating the gains made last week, topped by Friday's big surge. Looks like we are continuing that move ahead of the Fed minutes today," said Ellis Phifer, market strategist at Raymond James in Memphis, Tennessee.

The Fed releases the minutes of the July 29-30 meeting at 2 p.m. EDT (1800 GMT).

"I think the minutes will tell us more of the same and that they plan to end QE (quantitative easing) in October. They will also reiterate that they think they are moving toward their goals even though there are continued risks in the economy. They are not going to suggest the economy is going full steam ahead," Phifer said.

Some of the Fed's counterparts at the Bank of England voted unexpectedly to raise interest rates this month, according to minutes of the BOE's policy meeting of Aug. 6-7. Two policy makers voted to shift rates higher, marking the first time in three years BOE officials had voted for an increase.

In late morning trade, the benchmark 10-year U.S. Treasury note traded down 3/32 of a point in price, pushing the yield up to 2.41 percent. The 30-year long bond dropped 6/32, lifting the yield to 3.22 percent.

Investor concerns over the conflict between Ukraine and Russian-backed rebels ebbed on Wednesday. The leaders of Russia and Ukraine are set to meet next week for the first time in months to try to end their confrontation over the separatist rebellion in eastern Ukraine.

"Geopolitical risk has temporarily abated, despite a refusal by both Ukraine and Russia to support an unconditional cease-fire. The Russian convoy of 270 trucks carrying humanitarian aid remained parked at the Ukrainian border, though the Red Cross reportedly has reached a safe-passage agreement with Russia," Michael Woolfolk, global markets strategist at Bank of New York Mellon wrote clients.

"We continue to believe that bias for Treasury yields is lower, with the potential for another drop in 10-year yields to year-to-date lows before Labor Day," Woolfolk wrote.

Another factor keeping many investors on the sidelines is this Friday's speech by Fed Chair Janet Yellen at the annual Jackson Hole, Wyoming conference of central bankers. Expectations among economists are running toward a continuation of loose U.S. monetary policy for the foreseeable future. (Reporting by Daniel Bases; Editing by James Dalgleish)

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