U.S. Treasury yields remained modestly higher on Wednesday as investors assessed the most recent statement from the Federal Reserve, which said that although the U.S. economy has “made progress” toward the conditions needed for tapering bond purchases, it isn’t enough to start yet.

What yields are doing

The 10-year Treasury note yields
TMUBMUSD10Y,
1.258%

1.254%, versus 1.235% on Tuesday at 3 p.m. Eastern Time.

The 30-year Treasury bond rate
TMUBMUSD30Y,
1.914%

was at 1.912%, compared with 1.890% a day ago.

The 2-year Treasury note yields
TMUBMUSD02Y,
0.214%

0.215%, versus 0.204% on Tuesday.

Fixed-income drivers

Fed officials voted unanimously to keep the target range for the fed funds rate between zero and 0.25%, while saying it will continue to use coming meetings to assess whether enough economic progress has been made to start tapering its monthly $120 billion in Treasuries and MBS purchases.

Since last December, “the economy has made progress toward these goals,” the FOMC said in its statement.

Investors will now focus on a news conference by Jerome Powell, the chairman of the rate-setting Federal Open Market Committee, at 2:30 p.m. Eastern Time. They’ll be watching for any clues on when the central bank may start to withdraw the support for markets and the economy, which was implemented to mitigate the impact of the COVID-19 economic shock. Specifically, investors have been wanting 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.

Treasury yields have been anchored lower despite 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 inflation will be short-lived.

Ahead of the Fed update, a report showed that the U.S. trade deficit in goods rose 3.5% in June to a record $91.2 billion, reflecting a strong appetite among Americans for imports as the U.S. economy recovers from the coronavirus.

In addition, Treasury’s auction of 2-year floating rate notes garnered “very strong indirect demand,” according to Jefferies economists Thomas Simons and Aneta Markowska.

What strategists and traders say

BMO Capital Markets strategists Ian Lyngen and Ben Jeffery said in a note released before the FOMC statement that “we’ll be attuned to any insight Powell offers on the progress on the jobs front and expectations for the delta variant to have a meaningful impact on the recovery.”

“Today’s events are more likely to be about Fed nuance than monetary policy changes and as a result the price action will be a function of investors angst,” Lyngen and Jeffery said.

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