Yields fall before Fed meeting minutes, Powell speech

By Karen Brettell

NEW YORK, Aug 20 : U.S. Treasury yields fell to four-week lows on Monday ahead of a week centered on U.S. central bank policy, with no major economic releases or new supply to drive market direction.

The Federal Reserve will release minutes from its August policy meeting on Wednesday, which will be evaluated for any new indications of whether four interest rate hikes are likely this year.

The U.S. central bank is widely expected to raise rates for the third time this year in September, though doubts remain over whether a further hike in December is probable.

Fed Chairman Jerome Powell is due to speak on Friday at the Kansas City Fed’s economic symposium in Jackson Hole, Wyoming.

“It’s really going to be all about the minutes and Powell at Jackson Hole on Friday,” said Thomas Simons, a money market economist at Jefferies in New York.

“It’s going to break down to whether or not they take another step down the road towards giving the markets more confidence about future rate hikes,” Simons said.

Atlanta Fed President Raphael Bostic was due to speak on Monday.

Benchmark 10-year notes gained 10/32 in price on Monday to yield 2.839 percent, after falling as low as 2.835 percent, the lowest since July 19, and down from 2.873 percent on Friday.

The yield curve between 2-year and 10-year notes flattened to 23 basis points, the flattest level since 2007.

Investors are also focused on trade policy with China and the United States due to hold lower-level trade talks this month, offering hope that they might resolve an escalating tariff war that threatens to engulf all trade between the world’s two largest economies.

The Wall Street Journal reported that the talks in Washington would take place on Wednesday and Thursday, just as new U.S. tariffs on $16 billion of Chinese goods take effect, along with retaliatory tariffs from Beijing on an equal amount of U.S. goods.

Bearish positioning in Treasuries, meanwhile, with a large number of investors betting on further yield increases, risks a sharp move lower in yields in the event of a short squeeze.

There has been a “massive increase this week in short positions against 10 &30 yr UST mkts. Highest for both in history, by far,” Jeffrey Gundlach, chief executive officer of DoubleLine Capital said on Twitter on Friday. “Could cause quite a squeeze.”


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