Bond Report: Long-end Treasury yields tick higher ahead of July Fed minutes


Long-end Treasury yields edged up Wednesday as investors awaited the release of minutes of the Federal Reserve’s July policy meeting, which could offer clues to a timetable for the tapering of monthly asset purchases.

Analysts warned, however, that the continued spread of the delta variant of the coronavirus that causes COVID-19 could make the minutes less relevant as a guide.

What are yields doing?
  • The yield on the 10-year Treasury note

    rose to 1.274%, compared with 1.258% at 3 p.m. Eastern on Tuesday. Yields and debt prices move in opposite directions.
  • The 2-year Treasury note yield

    was at 0.209%, compared with 0.215% on Tuesday.
  • The 30-year Treasury bond yield

    rose to 1.933% from 1.919% Tuesday afternoon.
What’s driving the market?

Data released Wednesday showed that housing starts slumped in July, likely reflecting the continued supply constraints that construction firms faced nationwide. U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.53 million in July, representing a 7% decrease from the June’s upwardly-revised figure, the U.S. Census Bureau reported.

Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.64 million, up 2.6% from June and 6% from a year ago.

Later today, St. Louis Federal Reserve Bank President James Bullard will be interviewed by MarketWatch at noon (register to watch here). And investors looking for clues to policy will comb the minutes of the July 27-28 meeting of the policy setting Federal Open Market Committee for clues at 2 p.m. Eastern.

Treasurys put in a mixed performance Tuesday after data showed July retail sales fell more than expected.

Also, Federal Reserve Chairman Jerome Powell said Tuesday the pandemic continued to cast a shadow over activity, but that it wasn’t clear what rising COVID-19 cases caused by the delta variant would mean for the economy. He refrained from making comments on monetary policy at a virtual question-and-answer session with students and teachers from around the country.

News reports earlier this week said policy makers were nearing an agreement to begin scaling back purchases by November. The Wall Street Journal reported that some policy makers were looking to end purchases by mid-2022. A formal announcement on tapering bond purchases is expected at either next week’s symposium on monetary policy in Jackson Hole, Wyoming, or following the Fed’s September meeting.

What are analysts saying?

“The timing of the pickup in COVID-19 cases complicates the tradability of this afternoon’s FOMC minutes release,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a note.

“The condensed timeline of the delta episode has made the minutes less relevant in current market conditions and, all else being equal, easier to dismiss as old information,” he said. “After all, details on tapering and the degree to which inflation is a policy worry seems ‘so July’ at this stage.”

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