U.S. Treasury yields extended losses on Wednesday after Federal Reserve officials said they needed to see more signs of a strengthening U.S. economy before raising interest rates, according to minutes of a June Fed policy meeting at which Greece's debt crisis was cited as a serious concern.
"What you're seeing today is really just a continuation of the flight to quality," said Bob Andres, chief investment officer of Andres Capital Management, citing the ongoing debt crisis in Greece among other geopolitical issues.
"The initial response to an unfolding crisis is an increase in volatility and a 'flight to quality' as investors reduce risk. Treasury securities are the normal beneficiary of this exchange. These market moves are crisis dependent but can be very significant."
Andres expects to see more market volatility as investors reduce risks and load up on safe-haven assets such as U.S. Treasury debt. "Contagion is a phenomenon that is here to stay [and it's] the result of the world economy growing more interdependent," Andres said.
The minutes from the June 16-17 policy-setting committee meeting show how the central bank continues to grapple with its plan to raise interest rates later this year, in the wake of mixed economic data domestically and market turmoil gathering steam abroad. The minutes underscored the view that a Fed rate hike would likely have to wait until at least September.
Separately, the Treasury Department auctioned $21 billion in 10-year notes at a high yield of 2.225 percent. The bid-to-cover ratio, an indicator of demand, was 2.72, compared with a recent average of 2.67.