TREASURIES-US Treasury yields rise ahead of Fed minutes and bond auction
By Karen Brettell
NEW YORK, Feb 18 (Reuters) - U.S. Treasury yields rose on Wednesday before the Federal Reserve releases minutes from its latest meeting and ahead of the Treasury Department’s $16 billion auction of 20-year bonds.
The U.S. central bank is seen as likely to keep rates steady over the coming few months as the jobs market appears relatively solid, albeit with signs of weakness, and inflation eases.
The Fed held interest rates steady at its January 27-28 meeting amid what U.S. central bank chief Jerome Powell described as a solid economy and diminished risks to both inflation and employment, an outlook that could signal a lengthy wait before any further reductions in borrowing costs.
Market participants are focused on whether data will show a more rapid deterioration in the labor market that could bring forward expected rate cuts.
“I characterize the jobs market as fragile right now. Fragile doesn't mean broken, it just means at risk, and that if something breaks it could shatter,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
LeBas also notes that the Treasury market has rallied since data last week showed that sales of previously owned homes dropped 8.4% in January to the lowest level since December 2023.
Data on Wednesday showed that U.S. single-family homebuilding rebounded in December, but a decline in permits for future construction pointed to underlying weakness amid higher mortgage rates and material costs.
New orders for key U.S.-manufactured capital goods also increased more than expected in December and shipments of these products surged, cementing economists' expectations that business spending on equipment remained solid in the fourth quarter.
The 2-year note US2YT=RR yield, which typically moves in step with Fed interest rate expectations, rose 3.1 basis points to 3.468%. It hit a four-month low of 3.385% on Tuesday.
The yield on benchmark U.S. 10-year notes US10YT=RR rose 2.9 basis points to 4.083%. It dropped to 4.018%, the lowest since November 28, on Tuesday.
The yield curve between two- and 10-year notes US2US10=TWEB flattened by around a half basis point to 61 basis points.
Traders will watch how much demand there is for Wednesday’s 20-year bond sale in light of the recent drop in yields. The Treasury will also sell $9 billion in Treasury Inflation-Protected Securities on Thursday.
