Treasury yields steady as Fed says ‘limited amount’ of hikes ahead

U.S. government yields held steady on Wednesday after the Federal Reserve’s latest meeting minutes showed central bank members believe that a “limited amount” of interest rate hikes will be needed in the future.

The yield on the benchmark 10-year Treasury note climbed to 2.72 percent while the yield on the 30-year Treasury bond rose to about 3.02 percent. Bond yields move inversely to prices.

Fed members conceded in their December meeting that the central bank’s policy path is “less clear” after approving the fourth and final interest rate hike in 2018. The central bank’s latest meeting minutes showed some members hesitant about the December hike given a lack of more robust inflationary pressure.

Fed Chairman Jerome Powell assuaged investor concerns last week when he said that the central bank will remain data dependent when considering adjustment to the reduction of its enormous balance sheet and additional increases to the federal funds rate.

The minutes “were dovish — particularly for a meeting at which the Fed tightened,” Ian Lyngen, head of U.S. rate strategy at BMO Capital Markets. “Less clarity on the timing of future rate hikes and the usage of ‘patient’ made it evident that some policy rethink is underway at the Fed — perhaps ‘Santa Pause’ was in DC last month after all.”

The statement following the Fed’s December meeting substituted the phrase “the Committee expects that further gradual increases” would be appropriate, with “judges that some further gradual increases” are coming. Using “judges,” the minutes noted, was a gesture to markets of how the Fed plans to be data dependent.

Powell pledged during a panel discussion last week that the U.S. central bank “will be patient” with monetary policy. Investors, increasingly on edge over the possibility of a global slowdown, had feared the institution may be hiking interest rates too fervently.

Discussions between Washington and Beijing over trade concluded on Wednesday. U.S. Under Secretary of Agriculture for Trade and Foreign Agricultural Affairs Ted McKinney said earlier on Wednesday that he thought negotiations “went just fine.” He added: “It’s been a good one for us.”

The positive tone around the trade talks also boosted stocks, as the Dow Jones Industrial Average gained more than 100 points. Investors had fled to fixed income assets in previous weeks for safety as equity markets plunged amid fears of a potential slowdown in global economic growth.

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