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The minutes of the Federal Reserve meeting showed "sounds of hawks" and U.S. bonds fell slightly.

2024-05-23

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Minutes of the Federal Reserve's May meeting released on Wednesday showed that many policymakers questioned whether policies were strict enough to reduce inflation to target levels. Affected by this, U.S. Treasuries fell, with short-term U.S. Treasuries leading the decline. Data showed that the two-year U.S. bond yield rose by about 5 basis points to 4.88%; the 10-year U.S. bond yield rose by 1 basis point to 4.43%.

The minutes of the meeting showed that although participants assessed the policy as "well positioned," many policymakers mentioned that they were willing to further tighten monetary policy if necessary. However, the discussions mentioned in the meeting minutes occurred before the release of U.S. CPI data for April. The inflation data showed that price pressures have cooled for the first time in six months, which helps explain the relatively mild market reaction.

Ian Lyngen, head of U.S. interest rate strategy at BMO Capital Markets, said: "Despite the 'resolutely hawkish' tone of the meeting minutes, the inflation trajectory now is considered less dire than what prevailed at the time."

Inflation data released last week prompted a sharp repricing of the market, with investors buying U.S. bonds in anticipation of an imminent rate cut by the Federal Reserve. However, traders have since lowered their expectations for the Fed to cut interest rates this year. Swaps markets currently expect the Fed to cut interest rates by 38 basis points this year, down from 42 basis points at the end of last week.

After the minutes of the meeting were released, Nomura Securities economists revised their forecasts for the Fed's monetary easing policy. "The threshold for a rate cut appears to have risen," they said. They now expect the Fed to cut interest rates for the first time in September, rather than July as previously expected.

Earlier on Wednesday, after the $16 billion 20-year U.S. Treasury auction, the yield curve continued to flatten, with yields basically close to pre-auction levels, indicating strong demand. Large trades shortly after the auction were also consistent with bets on a flattening yield curve.

However, Ed Al-Hussainy, interest rates strategist at Columbia Threadneedle Investment, said: "The yield curve may invert further. Markets expect the Fed to be on hold for longer, while the risk of labor market weakness is increasingly likely to knock down long-term bond yields. Rate.

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The minutes of the Federal Reserve meeting showed "sounds of hawks" and U.S. bonds fell slightly.

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