U.S. bond yields remained higher on Wednesday after minutes from the Federal Reserve’s July policy meeting indicated that policy makers see the risk that they might need to tighten “by more than necessary” to restore price stability.
The yield on the 2-year Treasury
rose to 3.291% from 3.249% on Tuesday.
The yield on the 10-year Treasury
advanced to 2.889% from 2.822% as of late Tuesday.
The yield on the 30-year Treasury
climbed to 3.146% versus 3.113% Tuesday afternoon.
What’s driving markets
Traders continued to sell bonds, keeping yields up, after the minutes of the Fed’s July 26-27 meeting revealed that policy makers saw the need to raise rates to a “restrictive” stance and a risk of the public questioning their resolve to bring down inflation.
The minutes from July’s meeting, at which the central bank hiked borrowing costs by 75 basis points, also revealed that many officials saw a risk that the Fed could tighten more than necessary, given the constantly changing nature of the economic environment and long, variable lags in monetary policy’s impact. Some officials also said the benchmark fed-funds rate target was still below neutral, or the level which neither stimulates nor restrains economic growth, even after July’s rate hike.
Investors remain unsure about the future pace of Fed tightening. Fed futures traders flipped back and forth between expectations of a 75-basis-point and a 50-basis-point rate hike in September, according to the CME FedWatch Tool. The prospect of a larger rate hike has risen in recent sessions after this week’s earnings reports from Walmart
and Home Depot
suggested consumers were in better condition than thought.
Wednesday’s data releases showed that U.S. retail sales fell flat in July, mostly because of declining gas prices and fewer new car and truck purchases. Economists polled by The Wall Street Journal had forecast a 0.1% increase in sales.