Benchmark 10-year Treasury yields rose off session lows on Wednesday after minutes from the Federal Reserve's July meeting showed that policymakers were united in wanting to avoid the appearance of being on the path to further rate cuts.
The U.S. central bank cut rates by 25 basis points at the close of its July 30-31 meeting, with minutes for the meeting published on Wednesday showing broad concern among policymakers over a global economic slowdown, trade tensions and sluggish inflation.
A couple of participants wanted a 50 basis point cut at the July meeting, but policymakers agreed that they did not want to give the impression they were planning more rate cuts.
A speech by Fed Chairman Jerome Powell on Friday is expected to offer further clarity for market participants as yields have plunged since the July meeting and the 2-year/10-year yield curve inverted, signaling that a recession is likely in one to two years.
The minutes were "really old news," said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle.
"What Powell has to say on Friday is going to be much, much more important than these minutes." Benchmark 10-year notes fell 5/32 in price to yield 1.576%, up from 1.559% late on Tuesday.
The 2-year, 10-year yield curve briefly inverted for the first time in a week in late afternoon trading, by as much as 0.20 basis point. The spread steepened a little bit after the inversion and was last at 1.1 basis point. Bond market participants have been at odds with the Fed's economic outlook, after it said at its July meeting that future rate cuts may not be needed.
"The market is still acting as though they are behind the curve," said Lou Brien, a market strategist at DRW Trading in Chicago. Interest rate futures traders are pricing in a 100% probability of a rate cut at the Fed's September meeting, a 75% chance of an additional cut in October, and a 48% likelihood of another cut in December, according to the CME Group's FedWatch tool.
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