FOMC March Meeting Minutes Push Treasury Yields Higher

Secondary market

In the week ended April 10, 2015, yields on most Treasury securities in the secondary market rose compared to a week ago. The primary market movers were the FOMC (Federal Open Market Committee) minutes for the March 2015 meeting and crude oil prices. The three-to-ten year maturity securities saw double-digit yield rises. Yield on the benchmark ten-year Treasury note rose by 11 basis points week-over-week, ending at 1.96%.

FOMC March Meeting Minutes Push Treasury Yields Higher

FOMC minutes move Treasuries

The Federal Reserve’s FOMC released minutes of its March 2015 meeting on April 8. The minutes showed that policymakers were divided about June being the appropriate time to hike interest rates. You can read more about the minutes in Federal Reserve’s March 2015 Meeting Minutes Show a House Divided and in US Federal Reserve: What the March 2015 Division Means for Investors.

These divided opinions led to a fall in Treasury prices. Though the reaction to the release wasn’t sharp, it lingered throughout the week, especially because economic releases were thin.

A decline in the weekly initial jobless claims data also led Treasury prices to fall, as this indicates US job market strength. Meanwhile, a fall in March import prices suggests inflationary pressures are weak, which may hinder policymakers from raising rates in June. This led prices to rise. The latest weak non-farm payroll data for March may also propel policymakers along a more patient path toward rate normalization.

Crude oil prices

Treasury yields were pushed higher after crude oil prices jumped. Higher oil prices helped oil-related stocks post gains week-over-week. ConocoPhillips (COP) rose 5.3%, Schlumberger (SLB) rose 5.1%, BP (BP) rose 4.8%, and Chevron (CVX) gained 1.5% in the week ending April 10.

Investment impact

With the rise in Treasury securities of most maturities, Treasury-related ETFs fell due to the inverse relationship between yields and prices. The iShares 20+ Year Treasury Bond ETF (TLT) fell 0.8% and the iShares 7-10 Year Treasury Bond ETF (IEF) fell 0.3% during the week.

ETFs tracking the broader fixed income market also fell. The Vanguard Total Bond Market ETF (BND) and the iShares Core Total US Bond Market ETF (AGG) each fell 0.2% during the week.

In the next article, we’ll look at the auction of bonds and notes that took place last week.