Fed Minutes and Treasury Auction

August 17, 2020

Fed Minutes and Treasury Auction Photo

The last several trading days have seen an increase in 30-year Treasury yields of close to 30 basis points, to approximately 1.45%. The sell-off comes at a time when economic data has been stronger than expected, and the Treasury announced record-sized bond auctions to begin the process of extending the maturity of the national debt.

This week, Treasury bonds may face more pressure for higher yields as the Federal Reserve (Fed) minutes from the last meeting are released. Over the next several months, it is expected that the Fed will conclude its review of its inflation target and likely announce that it will tolerate greater inflation than its 2% target for a period of time, to help achieve its dual mandate of full employment and price stability. This change and the record amount of debt auctions have the potential to elevate yields. I expect the upside in yields to be relatively limited in the short term, with the potential growing greater for yield increases over the next several years. The yield curve may also be pushed steeper, with higher yields at the longer maturities.

Tags: Treasury | Federal Reserve | Bonds | Inflation | Yield curve

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