NEW YORK: US Treasury yields on Wednesday ticked up modestly after the publication of minutes from the Federal Reserve's January policy meeting showed committee members were undecided on whether to hike interest rates again this year.
The Fed in January signaled a pause in rate hikes, saying they would be "patient" about policy tightening, after indications of an economic slowdown roiled financial markets in December. Since then, markets had mostly priced out the possibility of another rate hike during this business cycle.
Wednesday's minutes showed uncertainty among members of the Federal Open Market Committee (FOMC) about further hikes this year, therefore driving yields on the two-year note, which rise in step with expectations of rate hikes, higher. The move, however, only just reversed the two-year yield's earlier losses, leaving it roughly flat from Tuesday's close, last at 2.4996 percent.
"They are open to rate hikes down the road and the market has not priced in the potential for rates to go up rather than down from here. I think that might be behind the market reaction," said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research.
Immediately following the release of the minutes, longer dated yields continued the day's trajectory higher, but rose slower than shorter-dated yields, with the benchmark 10-year yield up 0.7 basis point to 2.652 percent and the yield on the 30-year bond last up 1.3 basis points to 3.001 percent.
Fed policymakers thought pausing on rate hikes last month posed little risk and plenty of benefit, the minutes showed, giving them time to assess the effects of a global slowdown and the Fed's monetary tightening to date on US economic momentum.
"Many participants suggested that it was not yet clear what adjustments to the target range for the federal funds rate may be appropriate later this year," according to the minutes. "Several of these participants argued that rate increases might prove necessary only if inflation outcomes were higher than in their baseline outlook."
Fed governors speaking since the January pledge of patience have expressed differing opinions about rates and the current strength of the US economy. On Tuesday, Cleveland Fed President Loretta Mester said rates may need to be raised in 2019, while New York Fed President John Williams said he was comfortable at the current level.
"The minutes were not as deterministic as market optimists had hoped when it comes to the consideration that appeared to anchor the Fed's dramatic policy U-turn in January," said Mohamed El-Erian, chief economic adviser at Allianz.
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