US yields gain, Fed meeting minutes next week’s focus

US Treasury yields rose on Friday as investors awaited clues on how many times the Federal Reserve is likely to cut interest rates this year, with minutes due next week from the Fed’s most recent policy meeting being the next event that may offer new insight.

Softening consumer prices in April boosted expectations that the US central bank will be able to cut rates two times this year, beginning in September. But traders are also wary that this will depend on price pressures continuing to ease over the coming months.

“The Fed obviously hopes that the inflation data comes down quickly, as does the market, and reality is just a little slower,” said John Luke Tyner, fixed income analyst and portfolio manager at Aptus Capital Advisors in Fairhope, Alabama.

Data on Wednesday showed that the consumer price index (CPI) rose 0.3% last month for an annual gain of 3.4%, after advancing 0.4% in March and February. That remains above the Fed’s 2% annual target.

Fed policymakers also have not openly shifted views yet about the timing of rate cuts despite Wednesday’s improving inflation report.

Fed minutes due next Wednesday may offer more detail on what Fed officials are looking at in order to begin cutting rates. The meeting from April 30 to May 1, however, was before Wednesday’s CPI data.

“The timing is a little troubling for them because I imagine that the minutes will display some more hawkish commentary based on the first three months of the year,” Tyner said. “If we are seeing the data indeed slow down, maybe that could send kind of a mixed signal.”

The Fed indicated it is still leaning toward eventual reductions in borrowing costs at the meeting, but acknowledged that disappointing inflation readings in the first quarter could make those rate cuts a while in coming.

US Fed Governor Michelle Bowman on Friday repeated her view that inflation will fall further with the policy rate held steady, but said she has seen no improvement in inflation this year and remains willing to hike rates should progress stall or reverse.

Benchmark 10-year yields were last up 4 basis points at 4.42%.

Two-year yields rose 3 basis points to 4.825%.

The inversion in the yield curve between two-year and 10-year notes US2US10=TWEB narrowed 1 basis point on the day to minus 41 basis points.

The Treasury Department will sell USD 16 billion in 20-year bonds next Wednesday and USD 16 billion in 10-year Treasury Inflation-Protected Securities (TIPS) next Thursday.

(Reporting by Karen Brettell; Editing by Chizu Nomiyama and Will Dunham)