By Sunny Oh

U.S. government bond yields rose on Wednesday after the Federal Reserve released minutes from its September meeting, which underscored the central bank's intent to raise rates gradually amid a robust economic backdrop.

The 10-year Treasury note yield rose 2.1 basis points to 3.178%. The 2-year note yield was up 1.5 basis points to 2.882%, while the 30-year bond yield picked up 1.6 basis points to 3.346%, according to Dow Jones Market Data. Bond prices move in the opposite direction of yields.

The Fed minutes showed the majority of senior Fed officials believed the central bank should raise rates into restrictive territory (http://www.marketwatch.com/story/federal-reserve-minutes-indicate-interest-rates-will-have-to-rise-high-enough-to-slow-down-the-economy-2018-10-17). But some members of the Federal Open Market Committee said if there were no clear signs of the economy overheating, the central bank should look to avoid hurting growth through tighter monetary policy.

Expectations for a December rate increase now stand above 80%, according to the CME Group (https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/?redirect=/trading/interest-rates/fed-funds-flash.html).

"It's also now evident that the Fed is close to setting a truly restrictive policy rate for the first time this cycle -- a debate within the committee that we expect to hear more on as the December meeting approaches," wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

President Donald Trump has recently upped the pressure on the central bank. He labeled the Fed as his greatest threat, adding that the Fed lacked justification to raise rates amid muted inflation, in an interview with Fox Business Network (http://www.marketwatch.com/story/trump-delivers-another-attack-on-fed-calling-central-bank-the-biggest-threat-2018-10-16).

Investors will also watch for developments on Britain's talks to secure a trade deal before it leaves the European Union. Hopes for London and Brussels to make headway before the European Council meeting starting from Wednesday have withered as both sides struggle to reach an agreement that would allow them to avoid building border checkpoints between Northern Ireland, part of the United Kingdom, and the Republic of Ireland. European Council President Donald Tusk said the EU should make preparations for no deal.

Read:What is Brexit? And why is it proving so complicated? (http://www.marketwatch.com/story/what-is-brexit-and-why-is-it-so-complicated-2018-10-17)

Nonetheless, some investors are sanguine on prospects of a last-minute breakthrough.

"We believe there is a political will to avoid the cliff-edge," wrote Michel Martinez, chief Europe economist at Société Générale.

See: What is Brexit? And why is it proving so complicated (http://www.marketwatch.com/story/what-is-brexit-and-why-is-it-so-complicated-2018-10-17)

On the data front, September's housing starts fell 5.3% (http://www.marketwatch.com/story/housing-starts-tick-down-in-another-weak-month-for-residential-construction-2018-10-17) to an annualized pace of 1.201 million, close to the MarketWatch consensus estimate of 1.208 million.

As one of the most rate-sensitive sectors, the housing industry is vulnerable to the climb in bond yields. Its struggles may weigh on the overall economy's momentum, which has shown few signs of slowing down.

 

(END) Dow Jones Newswires

October 17, 2018 15:47 ET (19:47 GMT)

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