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Bonds rally after Fed minutes
Treasury prices jump as Fed minutes hint at change in monetary policy; dollar tumbles.
November 22, 2005: 3:01 PM EST

NEW YORK (CNNMoney.com) - Treasury bonds turned higher Tuesday as investors eyed the minutes from the last Fed meeting, which revealed that central bankers were still worried about a possible pickup in inflation but were also eyeing a slowdown in their rate-hiking campaign.

The dollar slipped to a session low against the euro and slumped against the yen on the news.

The benchmark 10-year note rose 8/32 to 100-18/32 to yield 4.43 percent, down from 4.47 late Monday. The 30-year bond edged up to 110-15/32 to yield 4.66 percent, little changed from the previous session. Bond prices and yields move in opposite directions.

In shorter-dated debt, the two-year note rose 4/32, yielding 4.31 percent, and the five-year note climbed 7/32, yielding 4.34 percent.

Releasing the minutes from its Nov. 1 meeting, members of the Federal Reserve's Open Market Committee (FOMC) stressed that inflation remained an underlying concern, but some members warned the central bank could go too far if it stayed its current course.

"All members believed it important to continue removing monetary policy accommodation in order to check upside risks to inflation and keep inflation expectations contained, but noted that policy setting would need to be increasingly sensitive to incoming economic data," the minutes said.

The minutes, which detail the meeting in which the Fed raised benchmark interest rates for the 12th straight time to 4 percent, also hinted that a change in language in the Fed statement should be coming soon, although no timetable was given.

"Several aspects of the statement language would have to be changed before long, particularly those related to the characterization and outlook for policy," the minutes said.

Bond prices jumped as investors were lured in by the possibility of an end to rate hikes.

"These are the first hints that the end of the hikes may be coming," David Powell, an analyst with Ideaglobal told Reuters.

A Reuters survey of about 100 economists suggested that the Fed funds rate would peak at 4.75 percent in mid-2006, by which time many expect a slowdown in the housing market to dampen economic growth.

The news that the Fed could end its rate hike campaign by hurt the dollar.

In currency trading, the euro bought $1.1804, up from $1.1730 late Monday. The dollar bought ¥118.85, down from ¥118.96 in the previous session.

A rise in interest rates generally help the dollar as they make dollar-denominated securities more attractive to foreign investors.

--from staff and wire reports

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