Bond Report: Treasury yields inch higher after Fed minutes

Treasury yields moved slightly higher Wednesday after the Federal Reserve said it was upbeat on the economy despite growing concerns around the outbreak of COVID-19.

What are Treasurys doing?

The 10-year Treasury note yield

TMUBMUSD10Y, -0.43%

 traded up 1.4 basis points to 1.569%. The 2-year note yield

TMUBMUSD02Y, -0.28%

  inched 1.4 basis points higher to 1.424%, while the 30-year bond yield

TMUBMUSD30Y, -0.40%

 edged 0.9 basis point up to 2.015%.

What’s driving Treasurys?

Minutes from the Federal Open Market Committee’s late January meeting showed that officials saw that the U.S. economy was stronger than expected, highlighting the cautious optimism in the business sector. Last week Fed Chairman Jerome Powell said that he would monitor the situation in China carefully.

The minutes also showed Fed policymakers were worried about the lack of inflation, and that they had tweaked the January policy statement to reflect that the central bank’s 2% inflation goal was symmetric.

See: Fed officials more upbeat about the economic outlook this year, minutes show

Investors saw confirmation that economic activity in the housing sector remained brisk. Construction on new homes in the U.S. for January came in at a annual pace of 1.57 million in January, down from 1.63 million in December, but nonetheless higher than MarketWatch analysts’ forecast of 1.44 million homes. Building permits ran a pace of 1.55 million.

Low bond yields and mortgage rates have helped lift homebuilding activity, but investors are attuned to weakness in the housing sector after analysts pored over disappointing details in the U.S. retail sales report last month.

In other data, U.S. producer prices jumped 0.5% last month, but analysts said the increase was unlikely to last.

What did market participants’ say?

“The release of the January FOMC meeting minutes today again reveals a Committee that wants higher inflation. Fighting inflation from below is taking hold,” said Bob Miller, head of Americas fundamental fixed income at BlackRock, in a note.

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