Treasuries Close Modestly Higher Following Fed Minutes

(RTTNews) - Treasuries showed a lack of direction throughout much of the trading day on Wednesday but managed to end the day modestly higher.

Bond prices moved to the upside going into the close after lingering near the unchanged line for most of the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dipped by 1.9 basis points to 2.266 percent.

The higher close by treasuries came following the release of the minutes of the Federal Reserve's latest monetary policy meeting.

The minutes of the meeting noted that growth in economic activity had slowed, although the Fed members agreed that the slower growth during the first quarter was likely to be transitory.

Most participants subsequently said it would soon be appropriate for the Fed to take another step in removing some policy accommodation.

The Fed is widely expected to raise interest rates at its next meeting in mid-June, with CME Group's FedWatch tool indicating an 83.1 percent chance of a quarter point rate hike,

However, the minutes said members generally judged it would be prudent to await additional evidence indicating that the recent slowing in the pace of economic activity had been transitory before raising rates.

The comment may increase the focus on the economic data due to be released in the weeks leading up to the June meeting.

The Fed minutes also said staff offered a briefing on a possible approach to winding down the central bank's $4.5 trillion balance sheet.

Nearly all policymakers expressed a favorable view of the approach, which was seen as consistent with the intention to reduce the Fed's securities holdings in a gradual and predictable manner.

Under the proposed approach, the Fed would announce a set of gradually increasing caps on the dollar amounts of Treasury and agency securities that would be allowed to run off each month.

Only the amounts of securities repayments that exceeded the caps would be reinvested each month, the minutes said.

Meanwhile, the Treasury Department announced the results of its auction of $34 billion worth of five-year notes, which attracted above average demand.

The five-year note auction drew a high yield of 1.831 percent and a bid-to-cover ratio of 2.67, while the ten previous five-year note auctions had an average bid-to-cover ratio of 2.42.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

The Treasury is due to finish off this week's series of long-term securities auctions on Thursday with the sale of $28 billion worth of seven-year notes.

On the economic front, the Labor Department is scheduled to release its weekly report on initial jobless claims on Thursday. Claims are expected to edge up to 238,000 in the week ended May 20th.