Reply #27: Bonds Embrace Dovish Fed [View All]

[54anickel]

http://www.thestreet.com/_pbear/markets/keynumbers/10259869.html

The spread between the two- and 10-year yields widened Tuesday after the release of the minutes of the Federal Open Market Committee's Dec. 13 meeting, which raised hopes that the central bank would soon end its rate hike campaign and boosted the short end of the curve.

After seesawing in afternoon trading, the benchmark 10-year ended the session up 6/32 to 101-2/32, to yield 4.36%, down from 4.39% Friday. Just before the minutes were released, the 10-year had given back all of the morning's gains as the market braced itself for the possibility of unexpectedly hawkish comments.

Instead, the possibility that rate hikes may soon be over and attendant inflation speculation weighed on the 30-year, which lost 8/32 to yield 4.55%, up slightly from 4.54% in the previous session.

In shorter-dated debt, the two-year gained 4/32 to yield 4.33%, and the five-year added 8/32 to yield 4.30%. This steepened the two- and 10-year yield spread by about 3 basis points, after hovering near 1 for most of the day. Bond prices and yields move in opposite directions.

Last week, the 10-year yield fell below that of the two-year for the first time since 2000 on speculation that the Fed would continue to raise rates to stay tough on inflation.

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