US yields edge up, Fed meeting minutes next week's focus
By Karen Brettell
May 17 (Reuters) -U.S. Treasury yields edged up on Friday as investors waited on fresh clues on how many times the U.S. Federal Reserve is likely to cut rates this year, with minutes from the Fed’s most recent policy meeting due next week the next event that may offer new insight.
Softening consumer prices in April have boosted expectations that the U.S. central bank will be able to cut rates two times this year, beginning in September. But traders are also wary that this will depend on price pressures continuing to ease over the coming months.
“The Fed obviously hopes that the inflation data comes down quickly, as does the market, and reality is just a little slower,” said John Luke Tyner, fixed income analyst and portfolio manager at Aptus Capital Advisors in Fairhope, Alabama.
Data on Wednesday showed that the consumer price index (CPI) rose 0.3% last month for an annual gain of 3.4%, after advancing 0.4% in March and February. That remains above the Fed’s 2% annual target.
Fed policymakers also haven't openly shifted views yet about the timing of rate cuts despite Wednesday’s improving inflation report.
Fed minutes due on Wednesday may offer more detail on what Fed officials are looking in order to begin cutting rates. The meeting from April 30 – May 1, however, was before Wednesday’s CPI data
“The timing is a little troubling for them, because I imagine that the minutes will display some more hawkish commentary based on the first three months of the year,” said Tyner. “If we are seeing the data indeed slow down, maybe that could send kind of a mixed signal.”
The Fed indicated it is still leaning towards eventual reductions in borrowing costs at the meeting, but acknowledged that disappointing inflation readings in the first quarter could make those rate cuts a while in coming.
Benchmark 10-year yields US10YT=RR were last up 2 basis points on the day at 4.40%.
Two-year yields US2YT=RR rose 1 basis points to 4.797%.
The inversion in the yield curve between two-year and 10-year notes US2US10=TWEB narrowed 2 basis points on the day to minus 40 basis points.
The Treasury Department will sell $16 billion in 20-year bonds next Wednesday and $16 billion in 10-year Treasury Inflation-Protected Securities (TIPS) on Thursday.
Reporting By Karen Brettell; Editing by Chizu Nomiyama
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