By Vivien Lou Chen and Jamie Chisholm
Yields on U.S. government debt finished mostly lower on Wednesday after the Federal Reserve’s January meeting minutes offered no big surprises for investors.
What’s happening
— The yield on the 2-year Treasury BX:TMUBMUSD02Y declined 2.4 basis points to 4.272%, from around 4.296% on Tuesday. Yields move in the opposite direction to prices.
— The yield on the 10-year Treasury BX:TMUBMUSD10Y fell less than 1 basis point to 4.535%, from Tuesday’s closing level of 4.542%.
— The yield on the 30-year Treasury BX:TMUBMUSD30Y finished marginally higher at 4.764%, versus 4.761% on Tuesday.
— Two- and 10-year yields ended lower for the third time in four sessions.
What’s driving markets
Minutes of the Fed’s Jan. 28-29 meeting, released on Wednesday, revealed that policymakers considered possible changes to the runoff of the central bank’s balance sheet. Various officials indicated it may be appropriate to consider pausing or slowing the balance-sheet runoff until a resolution is reached on the federal debt ceiling.
Overall, however, the minutes lacked any big unexpected information – which allowed market participants to focus on the idea that Fed officials remain biased toward easing interest rates, even if they need to wait before cutting borrowing costs again.
Separately, U.S. data showed housing starts declined sharply to a seasonally adjusted annualized rate of 1.37 million in January, which was below the 1.4 million median estimate of economists polled by the Wall Street Journal. The drop was due to colder-than-normal temperatures across much of the country.
Meanwhile, the Treasury’s $16 billion auction of 20-year bonds came in weak Wednesday afternoon, according to BMO Capital Markets strategist Vail Hartman.
During much of Wednesday’s session, investors and traders were assessing remarks made the previous day by U.S. President Donald Trump, who said he plans to impose 25% tariffs on imported automobiles, semiconductors and pharmaceuticals. Bond-market investors seemed to brush off those comments and look beyond the headlines about the Elon Musk-led entity known as the Department of Government Efficiency.
Earlier in the day, government-bond yields in Europe rose after a report showed U.K. annual headline inflation jumped to 3% in January, from 2.5% in December. The U.K. 10-year gilt yield BX:TMBMKGB-10Y rose 5.4 basis points to 4.613%, while the equivalent-maturity German bund yield BX:TMBMKDE-10Y jumped 6 basis points to 2.56%.
-Vivien Lou Chen -Jamie Chisholm
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