Yields on U.S. government debt on Wednesday morning were mostly standing pat ahead of the Federal Reserve’s announcement later in the session that is expected to provide clarity on coming policy plans, which have been important drivers for markets in recent weeks.

What are yields doing?

The 10-year Treasury note TMUBMUSD10Y, 1.779% yields 1.786%, virtually unchanged from 1.784% on Tuesday at 3 p.m. Eastern Time.
The 2-year Treasury note TMUBMUSD02Y, 1.028% rate sits at 1.040%, down compared with 1.025% on Tuesday, based on new issuance levels.
The 30-year Treasury bond TMUBMUSD30Y, 2.120% yields 2.132%, up slightly from 2.129% on Tuesday afternoon.

What’s driving the market?

The Federal Reserve isn’t expected to announce an immediate change to interest rates at its policy-setting meeting later Wednesday, but officials are likely to signal that they are preparing to raise rates at their following gathering in mid-March.

The rate-setting Federal Open Market Committee, or FOMC, will release its policy statement at 2 p.m. Eastern Time and Chairman Jerome Powell will host a news conference half-hour later.

Read: Stock-market investors can’t count on the ‘Fed put’—why policy makers aren’t seen rushing to rescue

Minutes from the central bank’s December meeting, released early this month, surprised the market with how detailed the discussion was about shrinking the central bank’s $9 trillion balance sheet. Those discussions are likely to continue this week and Powell will provide an update, but economists don’t expect specifics yet. 

The Fed’s messaging around its outlook for inflation may be a key point for investors, however. Inflation has been surging, evidenced by the consumer prices and those for wholesalers. The U.S. inflation rate as measured by the consumer-price index reached 7% in December.

Most economists expect inflation to moderate nearer to 4% by the summer, but that is still much higher than the current nominal fed-funds rate which stands between 0% and 0.25%.

Former Federal Reserve Gov. Randal Quarles said Tuesday that he thinks the Fed will move swiftly to raise its policy interest rate above the inflation rate because that is the only way to defeat inflation.

The Fed’s dot-plot projection of likely futures interest rates released last month only has the central bank raising its policy rate to 2.1% by the end of 2024.

Looking ahead, investors will be watching for a $26 billion auction of two-year floating-rate notes later Wednesday.

In U.S. economic reports, an advance report on trade in goods is due at 8:30 a.m. ET, followed by new home sales starts at 10 a.m. Eastern, both for December.

What strategists are saying

“We’re not anticipating any grand revelations from the FOMC; although Powell will use the press conference to ready investors for a 25 bp March liftoff hike,” wrote BMO Capital Markets strategist Ian Lyngen and Ben Jeffery, in a Wednesday research note.

“Market participants anticipating the immediate end of QE and/or greater certainty regarding the timing or details of balance sheet runoff will be disappointed; so, in this regard, the risks are skewed toward a less-hawkish than anticipated read from the Fed,” the analysts wrote.

What's your reaction?

Excited
0
Happy
0
In Love
0
Not Sure
0
Silly
0

You may also like

Leave a reply

Your email address will not be published. Required fields are marked *

More in:Latest News