US Treasury yields rose to one-week highs on Wednesday after minutes of the latest Federal Reserve meeting said the central bank was surprised at the US labour market's quick progress, suggesting a rate increase would come sooner rather than later. Yields on US long government debt advanced for a third straight session, which may reflect investors' overall comfort with the pace of the US recovery.
It could also mean investors are booking profits amid a searing government bond rally this year. "The Fed came out with a hawkish tone in its minutes and people's perception is that the Fed will move soon on rates," said Tom di Galoma, head of fixed income rates and credit trading at ED&F Man in New York.
"But I think we're still a long way off. If anything, this is a good buying opportunity as far as yields go. There's no corporate supply and the money will end up going to Treasuries." In minutes of its July 29-30 policy meeting, the Fed cited the quick recovery in the US labour market but said it doesn't want to bring forward a planned rate hike until the recovery looks more convincing.
In late trading, the benchmark 10-year US Treasury note traded down 6/32 of a point in price, pushing the yield up to 2.433 percent. The yield hit a one-week high of 2.446 percent. The 30-year long bond slipped 2/32, lifting the yield to 3.223 percent. Yields hit as high as 3.243 percent, a one-week peak in the aftermath of the Fed minutes, Prior to the release of the Fed statement, trading was lackadaisical given a seasonal slowdown and a lack of US economic data to provide impetus for taking big positions.
Investor concerns over the conflict between Ukraine and Russian-backed rebels also ebbed. 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," said Michael Woolfolk, global markets strategist at Bank of New York Mellon wrote clients.
"We continue to believe the bias for Treasury yields is lower, with the potential for another drop in 10-year yields to year-to-date lows before Labour 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 US monetary policy for the foreseeable future. Kim Rupert, managing director at Action Economics in San Francisco thinks this Treasuries selloff won't be sustained. "Yellen tomorrow will talk about slack in the labour market," said Rupert.