Treasuries Close Modestly Lower Following Fed Minutes

Treasuries fluctuated following the release of the minutes of the latest Federal Reserve meeting before ending the day modestly lower.

Bond prices climbed off their worst levels but still ended the day in negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.5 basis points to 1.273 percent.

The modestly lower close by treasuries came as the Fed minutes revealed most officials at the central bank’s July monetary policy meeting believe it will be appropriate to begin tapering asset purchases this year.

The expectation of tapering asset purchases this year comes as most participants saw the “substantial further progress” criterion as satisfied with respect to the price stability goal and as close to being satisfied with respect to maximum employment.

However, treasuries climbed off their worst levels as the minutes of the July 27 to 28 meeting showed there was still some disagreement over the timing of tapering the asset purchases.

While some believe tapering could begin in the “coming months,” others felt a reduction in the pace of asset purchases would be more likely to become appropriate next year.

Participants favoring waiting until next year saw prevailing conditions in the labor market as not being close to meeting the “substantial further progress” standard or because of uncertainty about the degree of progress toward the price stability goal.

The Fed has repeatedly pledged to maintain its asset purchases at current levels until “substantial further progress” has been made toward both its maximum employment and price stability goals.

The minutes showed participants also expressed a range of views on the appropriate pace of tapering asset purchases once economic conditions satisfied the “substantial further progress” criterion.

Reflecting the recent surge in new cases of the delta variant of the coronavirus, several participants noted their views on the appropriate path of asset purchases could change if the economic effects of the new strains of the virus turn out to be notably worse than anticipated.

With the Fed pledging to provide advance notice before making changes to its asset purchase program, traders are likely to pay close attention to the statement following the next monetary policy meeting in September.

Trading on Thursday may continue to be impacted by reaction to the Fed minutes, although traders are also likely to keep an eye on the weekly jobless claims report.

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