Yields drift lower, Fed's Powell this week's focus

NEW YORK: U.S. Treasury yields ended marginally lower on Monday in light trading volumes as investors waited on comments from Federal Reserve Chair Jerome Powell on Friday for any new clues on when the U.S. central bank may begin paring bond purchases.

Powell is due to speak at the Fed's annual economic symposium at Jackson Hole, Wyoming.

"In the interim, there is little urgency to challenge the existing range in U.S. rates and therefore a sideways grind remains the path of least resistance as the market enters late-August," Ian Lyngen, head of U.S. rates strategy at BMO Capital markets, said in a report on Monday.

Minutes from the Fed's July meeting released on Wednesday showed that the bulk of the U.S. central bank's policy-setting committee was coalescing around a plan that would see the Fed start trimming its bond-buying program later this year, though policymakers remained somewhat at odds over how fast to taper the asset purchases.

An uptick in Delta variant COVID-19 cases, however, has raised concerns that the economic recovery may take longer than previously expected, and could push back the timeline on normalizing monetary policy.

Benchmark 10-year yields fell less than a basis point on the day to 1.253%.

The yields are in the middle of their recent range after falling from a one-month high of 1.379% on Aug. 12, while holding above a six-month low of 1.127% reached earlier this month.

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Analysts warned against reading too much into price action as trading volumes are light with many traders and investors out for August summer vacations.

Yields had edged higher earlier on Monday as rising stocks reflected improving risk sentiment.

The Treasury will also sell $183 billion in short and intermediate-dated supply this week, including $60 billion in two-year notes on Tuesday, $61 billion in five-year notes on Wednesday and $62 billion in seven-year notes on Thursday.

Bond yields are also likely being held down by seasonality, with August typically being a strong month for bonds.

"The biggest yield changes for the whole month of August tend to be to the down side," Erik Nelson, a macro strategist at Wells Fargo said in a report on Monday. "We doubt the 10y yield can move much lower, but we see few short-term catalysts for a big move higher."

Data on Monday showed that U.S. business activity growth slowed for a third straight month in August as capacity constraints, supply shortages and the rapidly spreading Delta variant of the coronavirus weaken the momentum of the rebound from last year's pandemic-induced recession.

U.S. existing home sales also increased for the second consecutive month in July as inventories improved moderately, while prices eased from the prior month's record level.