Treasuries Gain for Second Day After Minutes Show Divided Fed

Are Market Inflation Expectations Higher Than the Fed's?

Treasuries rose for a second day after Federal Reserve minutes released Wednesday showed officials were split on whether an interest-rate increase was needed anytime soon.

Benchmark 10-year notes pared this month’s decline after policy makers were divided on whether the job market would keep improving and saw little risk of a marked pickup in inflation. The release of the minutes came a day after New York Fed President William Dudley said a move was possible as soon as next month.

“The minutes suggest a high hurdle for a rate hike in September,” said Janu Chan, a senior economist at St. George Bank Ltd. in Sydney. “Even if the Fed hikes, we only see them going maybe once, and that would probably have little impact on the 10-year yield.”

The benchmark 10-year note yield fell two basis points to 1.53 percent as of 9:28 a.m. in Tokyo after sliding three basis points Wednesday, according to Bloomberg Bond Trader data. The price of the 1.5 percent security due in August 2026 rose 5/32, or $1.56 per $1,000 face amount, to 99 22/32.

The yield dropped to a record 1.318 percent last month. St. George predicts it will decline to 1.30 percent by year-end.

The probability of a U.S. rate increase in 2016 is 49 percent, according to Bloomberg calculations based on fed fund futures. The odds have risen from 36 percent at the end of July.

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