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Bond Report: U.S. Treasury yields hold ground after dovish Fed minutes

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U.S. Treasury yields lacked direction on Wednesday after the release of the minutes from the Federal Reserve’s March meeting showed the U.S. central bank was likely to stay dovish for an extended time.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.663%

was flat at 1.653%. The 2-year note
TMUBMUSD02Y,
0.164%

slid 0.8 basis point to 0.151%, while the 30-year bond yield
TMUBMUSD30Y,
2.355%

rose 1.9 basis points to 2.336%. Bond prices move inversely to yields.

What’s driving Treasurys?

The Fed’s minutes from its March meeting showed that it would be “some time” before the central bank started tapering its asset purchases, a decision that would hinge on the realization of substantial further progress towards the Fed’s inflation and employment goals.

The minutes also showed senior Fed officials were split on the outlook for inflation, the bugaboo of bond investors. While some argued bottlenecks and strong demand could see price pressures increase more than expected, others felt the same factors that had held back inflation over the last decade could persist.

See: Some Wall Street banks say rate-hike bets are overdone — so buy bonds

In U.S. economic data, the trade deficit  climbed 4.8% in February to record $71.1 billion.

Mortgage applications fell for a fifth straight week in the week ended April 2, down 5.1%. This comes as long-term mortgage rates, which use the 10-year Treasury yield as a benchmark, have risen steadily this year.

What did market participants say?

“I feel the market had got really it wrong, thinking the Fed would have to reverse course and increase policy rates faster than they had been signaling,” said Patrick Leary, chief market strategist at Incapital, in an interview.

“Some of the Fed speak and minutes reinforces the message that the Fed is looking for substantial progress in employment before they start signal tapering,” said Leary.

Read: 10-year Treasury yield slips below 1.70% as bond market looks past good economic news

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