January 4, 2017 / 9:33 PM / 9 months ago

TREASURIES-Yields fall after uncertain tone in Fed minutes

* Fed sees inflation risks with Trump’s fiscal stimulus -minutes

* Fed minutes less hawkish than analysts expected (Recasts lead with decline in yields; adds details on 30-year bond yields; updates prices )

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 4 (Reuters) - U.S. Treasury debt yields slid in choppy trading on Wednesday after minutes of the last Federal Reserve meeting struck a more uncertain tone than the market expected, especially with respect to the new administration’s fiscal policies.

Yields on U.S. 10-year notes and 30-year bonds hit session lows following the release of the Fed minutes on monetary policy. The 30-year yields hit a four-week trough. Many investors were expecting a more hawkish stance after the Fed in December raised interest rates for the first time in a year.

“The broad anticipation was for hawkish thinking in particular with regard to inflation risk,” said Jim Vogel, interest rate strategist at FTN Financial in Memphis.

“But instead it turned out that the meeting talked a great deal about how to anticipate and plan for potential fiscal stimulus. That was something that Yellen appeared to downplay in the December press conference,” he said, referring to Fed Chair Janet Yellen.

The minutes of the Dec. 13-14 meeting showed many policymakers were considering faster interest rate increases as the economy could grow at a quicker pace because of fiscal stimulus under President-elect Donald Trump’s administration.

The minutes also spelled out the downside risks that could limit economic growth, such as trade barriers, the dollar’s appreciation and uncertainty on fiscal measures.

“We get the sense that the Fed may be content remaining on the sidelines until there is more clarity on the economic impact from the incoming administration’s policies, which based on its opaque approach to announcing priorities will take some time to tease out,” said Marvin Loh, global market strategist at BNY Mellon in Boston.

In late trading, the U.S. 10-year note was up 4/32 in price to yield 2.437 percent, compared with 2.454 percent late on Tuesday.

U.S. 30-year bond prices were up 9/32, yielding 3.035 percent, down from Tuesday’s 3.05 percent. Yields hit their lowest level since Dec. 8, at 3.028 percent.

U.S. two-year note yields were at 1.218 percent, compared with 1.226 percent on Tuesday. The yield was at 1.234 percent before the Fed minutes.

Analysts said the overall bias of the market was for higher Treasury yields amid what is known as “rate-lock selling” during an expected heavy corporate issuance calendar this month.

Wall Street dealers typically lock in borrowing costs for corporate bonds they are underwriting by selling Treasuries as a hedge before the deal is completed. Once the bond is sold, the dealer buys back Treasuries to exit the rate-lock. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrew Hay and Leslie Adler)

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