Treasury yields fall as the Fed prepares to begin its two-day policy meeting

U.S. bond yields fell early Tuesday before the Federal Reserve began its two-day policy meeting.

What is going on

  • The 2-year Treasury yield BX:TMUBMUSD02Y fell 2.1 basis points to 4.308%. Yields move in the opposite direction to prices.

  • The 10-year Treasury yield BX:TMUBMUSD10Y fell 2.3 basis points to 4.056%.

  • The 30-year Treasury yield BX:TMUBMUSD30Y fell 3.1 basis points to 4.286%.

What drives the markets

Ten-year Treasury yields fell back to within several basis points of the 4% mark, after falling sharply in the previous session following news that the U.S. government was looking to borrow less than expected in the first trimester, and therefore will probably have to. sell fewer bonds.

“The market will then watch the details of the size of the Treasury coupon auction in tomorrow’s redemption statement,” said Jim Reid, a strategist at Deutsche Bank. “Recall that the latest quarterly redemption announcement on November 1st marked the beginning of the dramatic bond rally towards the end of the year.”

The drop in benchmark borrowing costs came before the Federal Reserve began its two-day monetary policy meeting on Tuesday, during which it is expected to make a decision to leave benchmark interest rates in a range between 5.25% and 5.50%.

Investors will focus on the Fed’s accompanying policy statement and Chairman Jerome Powell’s comments in his press conference for guidance on the chances of a rate cut in the coming months.

The probability of a rate cut of at least 25 basis points by the next Fed meeting in March is estimated at 47.6%, down from 88.5 a month ago following some better-than-expected economic data lately .

A team of economists at Bank of America, led by Michael Gapen, said recent comments from Fed officials suggest the central bank is pleased with the overall state of the economy and the progress made in reducing inflation and this could help them to ease the policy next time. , although they won’t report it on Wednesday.

“The Fed needs to buy time to see more data,” BofA said. “We believe the rate guidance should be adjusted again as we believe the current upward bias contained in the statement remains unsustainable. The language is likely to become more neutral, but the direction of recent changes would signal some easing.”

U.S. economic updates scheduled for release Tuesday include the S&P Case-Shiller home price index for November, due at 9 a.m. Eastern, followed at 10 a.m. by the December job openings and consumer confidence report by January.

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