August 21, 2019 / 1:53 PM / a month ago

TREASURIES-Yields higher on improving risk sentiment, before Fed minutes

    * Risk sentiment improved, reducing bond demand
    * Fed to release minutes from July meeting
    * Fed's Powell to speak on Friday

    By Karen Brettell
    NEW YORK, Aug 21 (Reuters) - U.S. Treasury yields rose on
Wednesday as rising stock prices reflected improving risk
sentiment, and as investors awaited the release of minutes from
the Federal Reserve’s July meeting.
    Stock markets opened higher as investors cheered upbeat
earnings from Lowe's and Target.             
    Italy’s government debt also steadied as Italian President
Sergio Mattarella began two days of talks with parties on
Wednesday to seek a way out of a political crisis that will lead
to formation of the country's 67th government since World War
Two or to early elections.             
    But the Federal Reserve is the prime focus of investors this
week, with Wednesday’s meeting minutes and a speech by Fed
Chairman Jerome Powell on Friday.
    Bond yields have plunged and a key part of the yield curve
has inverted since the U.S. central bank in July cut rates for
the first time in a decade, and said that further rate decreases
may not be needed.
    Market participants are now focused on whether there has
been any change in Powell’s stance on future rate cuts, given
the increasing disparity between the Fed's outlook on the
economy and that of the bond market.
    “The market is still acting as though they are behind the
curve,” said Lou Brien, a market strategist at DRW Trading in
    Slowing economic growth and expectations that inflation will
remain tepid are holding long-dated bond yields near historic
    The yield curve between two-year and 10-year notes inverted
for the first time since 2007 last week, indicating that a
recession is likely in one to two years.
    Interest rate futures traders are pricing in a 98%
probability of a rate cut at the Fed’s September meeting, a 78%
chance of an additional cut in October, and a 49% likelihood of
another cut in December, according to the CME Group’s FedWatch
    Benchmark 10-year notes             were last down 9/32 in
price to yield 1.589%, up from 1.559% late on Tuesday.
    The two-year, 10-year yield curve                was steady
at 4 basis points.

 (Editing by David Gregorio)
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