U.S. bond yields fell slightly early Wednesday as traders waited for a monetary policy update from the Federal Reserve later in the day.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
dipped by less than 1 basis point to 4.731%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
retreated 1.5 basis points to 4.189%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
fell 2 basis points to 4.292%.
What’s driving markets
All eyes will be on the Federal Reserve’s policy decision and forecasts, due at 2 p.m. Eastern, followed half-an-hour later by Chair Jerome Powell’s press conference.
The benchmark 10-year Treasury yield has fallen from a 16-year high just above 5% in October, to roughly 4.2% amid hopes that inflation at the lowest level since early 2021 means the Fed can stop hiking borrowing costs.
Markets are thus pricing in a 98 probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% later in the day. Indeed, investors also see a 92% chance rates will be on hold at the subsequent meeting in January, according to the CME FedWatch tool.
With no change in policy expected, there will be greater emphasis on whether Fed officials, and particularly Chair Powell, agree with the market’s projections of rate cuts beginning as early as May.
Producer prices data for November, due for release at 8:30 a.m., will be scanned for any indications of building inflationary pressures.
What are analysts saying
“Powell will have to walk a fine line by recognizing the ground gained towards the normalization of the economy while pushing back on the idea of early rate cuts,” said Oscar Munoz, chief U.S. macro strategist at TD Securities.
“We expect the chairman to lean against the Committee’s likely dovish guidance at 2pm, with guarded hawkishness in the post-meeting presser,” he added.
