NEW YORK: US Treasury yields edged higher on Wednesday as investors waited on minutes from the Federal Reserve's July meeting for any new indications on when the US central bank is likely to begin paring bond purchases.
Fed Chair Jerome Powell has said that he wants to see further improvement in employment before tightening policy, even as other Fed members worry that recent increases in inflation may be more than transitory.
"The key thing that we will be watching is for any updated timeline with respect to the taper outlook," said Zachary Griffiths, an interest rate strategist at Wells Fargo in Charlotte, adding that he sees the Fed as unlikely to announce a policy change until December.
"The other thing we're watching for is the Fed's assessment of inflation ... any indication there that committee members are becoming uneasy and perhaps faltering in the transitory narrative we think would be taken very hawkishly," Griffiths added.
Data on Wednesday showed that US homebuilding fell more than expected in July, the latest indication that surging construction costs and home prices continued to constrain the housing market early in the third quarter.
US Treasury yields continue fall as economic worries persist
Benchmark 10-year notes rose one basis point to 1.27%. The yield curve between two-year and 10-year notes steepened one basis point to 106 basis points.
Investors will be looking to see if the Fed expresses concern about new COVID-19 variants including Delta. New Zealand's central bank delayed raising rates on Wednesday as policymakers quickly shifted gears after the country was put into a snap COVID-19 lockdown over a handful of new cases.
Powell is also due to speak at the Fed's annual economic symposium next week in Jackson Hole, Wyoming.
Demand for longer-dated debt will be tested on Wednesday when the Treasury sells $27 billion in 20-year bonds. Analysts at JPMorgan said that relatively low yields and low liquidity with many investors out for August summer holidays could reduce demand for the bonds.
"Though the 20-year sector appears somewhat cheap along the curve, Treasury yields still appear too low versus fundamentals, and liquidity is impaired: thus we think tomorrow's auction will require above-average end-user demand to be digested smoothly," the analysts said in a report sent late on Tuesday.
The Treasury will also sell $8 billion in 30-year Treasury Inflation-Protected Securities (TIPS) on Thursday.
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