US yields higher after data, Fed minutes

NEW YORK, July 5 (Reuters) – US Treasury yields were mostly higher on Wednesday after a softer-than-expected reading on US-made goods and the minutes from the Federal Reserve’s June policy meeting did little to alter expectations on the path of rate hikes.

Almost all Fed officials agreed to hold interest rates steady at the June meeting, the first pause after hikes at 10-straight meetings prior, according to the minutes, but most believed more rate hikes would be needed.

Expectations for a 25-basis-point hike from the Fed at its meeting on July 25-26 are at 88.7%, according to CME’s FedWatch Tool, up from 81.8% a week ago.

The yield on 10-year Treasury notes was up 7.9 basis points to 3.938%.

“The longer-term yields are mostly just catching up with the move higher that we’ve seen in the short end, but investors are still trying to digest what the Fed’s next move is,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

“The Fed all seems to be on the same team in terms of we are getting two more rate hikes this year, and so the market is kind of buying into that a little bit.”

Yield slowly advanced throughout the session after factory orders rose 0.3% in May, shy of the estimate of economists polled by Reuters for a 0.8% increase and matching the revised 0.3% rise in the prior month. The manufacturing sector has struggled under the Fed’s rapid rate hike cycle.

Investors will also gauge a flurry of data on the labor market over the next two days, which will help shape the Fed’s aggressiveness in tightening monetary policy.

The yield on the 30-year Treasury bond was up 6.5 basis points to 3.942%.

Federal Reserve Bank of New York President John Williams will speak later today in a moderated discussion at a Central Bank Research Association meeting.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 100.7 basis points after experiencing its deepest inversion in more than 40 years on Monday.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 0.2 basis point at 4.942%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.24%, after closing at 2.247% on Monday, near its highest close in two months.

The 10-year TIPS breakeven rate was last at 2.258%, indicating the market sees inflation averaging 2.26% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Will Dunham and Nick Zieminski)