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Aug. 21, 2019, 3:09 p.m. EDT

2-year Treasury yield climbs after Fed minutes say rates not on ‘preset course’

30-year German government bond auction struggled to draw demand

By Sunny Oh

Short-term U.S. Treasury yields rose on Wednesday after minutes from the Federal Reserve’s July meeting showed the U.S. central bank wasn’t ready to commit to a series of rate cuts.

What are Treasurys doing?

The 2-year Treasury note yield (XTUP:BX:TMUBMUSD02Y)  , sensitive to shifting expectations for Federal Reserve policy, climbed 5.5 basis points to 1.569%. The 10-year note yield (XTUP:BX:TMUBMUSD10Y)   was up 2 basis points to 1.577%, while the 30-year bond (XTUP:BX:TMUBMUSD30Y)  rose 0.9 basis point to 2.051%.

What’s driving Treasurys?

The minutes of the Fed’s meeting last month showed that senior officials preferred to follow a meeting by meeting approach when deciding on interest rate changes. The minutes said the U.S. central bank didn’t want to give the appearance of moving in a “preset course,” and that July’s rate cut was only “part of a recalibration” of policy.

The minutes also showed most officials didn’t see the need to cut rates to lift inflation expectations, as they expected the lower inflation readings to be temporary.

San Francisco Fed President Mary Day said a recession was not on the horizon on Tuesday in written answers to questions on the Quora website.

See : Fed officials shied away in July from planning future interest-rate cuts

In Europe, Germany auctioned off a batch of 30-year bonds at a record-low yield of negative 0.11% but was only able to sell €824 million ($915 million) of the up to €2 billion of debt for sale. The debt sale initially weighed on prices for government paper but its impact faded by the end of the trading session.

The German 10-year government bond yield (XTUP:BX:TMBMKDE-10Y)   rose 1.6 basis points to negative 0.676%, while the 30-year bond yield (XTUP:BX:TMBMKDE-30Y)   traded at negative 0.181%, Tradeweb data show.

What did market participants’ say?

On the Fed minutes:

“There was no hint of a “one and done” mentality on rate cuts. But, many opponents of action this summer cherry picked their way through the data as they strained to see the brighter side on trade and inflation,” wrote Jim Vogel, an interest-rate strategist at FTN Financial.

“A quick and major takeaway is there are still many on the committee who simply do not see lower inflation as a threat. A plea more cuts are needed quickly to get inflation moving higher will fall on a lot of deaf ears,” said Vogel.

Link to MarketWatch's Slice.