U.S. Treasury yields climbed modestly on Wednesday as investors await the most recent statement from the Federal Reserve, which could offer insights about the economic outlook and inflation.

What yields are doing

The 10-year Treasury note yields
TMUBMUSD10Y,
1.259%

at 1.256%, versus 1.235% on Tuesday at 3 p.m. Eastern Time.

The 30-year Treasury bond rate
TMUBMUSD30Y,
1.912%

was at 1.908%, compared with 1.890% a day ago.

The 2-year Treasury note yields
TMUBMUSD02Y,
0.207%

0.203%, versus 0.204% on Tuesday.

Fixed-income drivers

Investors will focus on the Fed’s policy update due at 2 p.m. Eastern Time later in the session, which will be followed by a news conference by Chairman of the rate-setting Federal Open Market Committee Jerome Powell’s news conference at 2:30 p.m.

Although the U.S. central bank is not expected to make any substantial policy changes, investors will be watching for clues on when the central bank may start to withdraw support for markets and the economy that was implemented to mitigate the impact of the COVID-19 economic shock.

Specifically, investors want to know the Fed’s timing on scaling back monthly purchases of $80 billion in Treasurys and $40 billion in mortgage-backed securities and when it might raise interest rates.

Earlier during semiannual testimony to Congress, Powell said that the Fed won’t hesitate to raise interest rates to tamp down overheated inflation, but has thus far viewed evidence of hotter-than-expected pricing pressures as a temporary phenomenon, pegged to increased demand and supply-chain bottlenecks in the aftermath of the economic recovery from COVID.

Treasury yields have been anchored lower despite the recent inflation data, leading many to speculate that buying in Treasurys has been due to other factors, including reduced issuance, or that debt investors believe that inflation will be short-lived.

Ahead of the Fed update, investors will be parsing data on international trade in goods at 8:30 a.m. Eastern Time.

What strategists and traders say

“The FOMC is likely to leave rates, the pace of asset purchases and guidance all unchanged today,” wrote strategists at UniCredit in a research report.

“The[FOMC] will begin to formally discuss plans for tapering asset purchases at this meeting, but we do not expect any clear hint on the timing or composition of tapering. There are two main reasons for this. First, there are a range of views on the FOMC regarding tapering, and it will likely take a while to build a consensus. Second, most FOMC participants would like to wait for incoming data to be able to make a clearer assessment of the economy and the progress that has been made toward the Fed’s goals, as reopening effects and fiscal-stimulus effects fade and temporary factors weighing on labor supply ease,” the strategists wrote.

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