NEW YORK: US Treasury debt yields edged higher on Wednesday, trading in narrow ranges, as investors awaited minutes of the last Federal reserve policy meeting that could further shed light on the U.S. central bank's cautious outlook on the economy and interest rates.
The Fed, at the conclusion of its March 18 monetary policy meeting, had provided a bleaker-than-expected view on the world's largest economy and said the pace of U.S. rate increases would be slower than many initially thought.
"We noticed from the Fed speakers that they have been walking the market to a dovish interpretation of their March 18 statement," said Aaron Kohli, interest rate strategist at BNP Paribas in New York.
"If we see anything in the minutes that suggest the market misread the dovishness of the March 18th statement, then you could see the market setting up for that," he added.
Fed officials on Wednesday again struck a dovish tone, saying the U.S. central bank should exercise caution in raising rates.
Fed Governor Jerome Powell said he would be willing to start raising U.S. interest rates even with low inflation, but said the central bank should proceed slowly from then on to ensure continued recovery from the crisis.
New York Fed President William Dudley, at a Reuters event, echoed his dovish comments on Monday, and said there are strong arguments for being "a bit on the late side" in raising interest rates. He did say, however, a rate hike in June is still a possibility, but the bar is higher.
In late morning trading, U.S. 10-year Treasury prices were down 3/32 to yield 1.905 percent, from 1.893 percent late Tuesday. U.S. five-year notes slipped 1/32 with a yield of 1.337 percent, from 1.331 percent on Tuesday.
U.S. 30-year Treasuries prices, also fell 7/32, yielding 2.540, from 2.523 late Tuesday.
BNP's Kohli said there is still momentum left in a Treasury rally.
"The U.S. economic picture has been muddy recently. The Fed has put emphasis on employment strength as the one driver that would negate all the negative news," said Kohli. "But this month, there's a big monkey wrench thrown at the employment picture."
Also later on Wednesday, investors are bracing for the $21 billon, U.S. 10-year note auction.
CRT Capital said it is cautious about the auction and while it expects significant non-dealer interest, there is still the risk the U.S. government could pay a higher-than-expected yield.
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