Treasury yields were slightly lower on Monday as investors geared up for this week’s meeting of Federal Reserve policy makers.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.279%

was down by less than 1 basis point at 1.275% versus around 1.280% late Friday afternoon, according to data from FactSet. Yields fall as debt prices rise.

The 2-year note yield
TMUBMUSD02Y,
0.202%

was higher at 0.202% versus 0.194% on Friday.

The 30-year Treasury bond yield
TMUBMUSD30Y,
1.924%

declined to 1.916%, compared with 1.924%.

What’s driving the market?

Treasury yields were under renewed pressure earlier Monday as stocks sold off in China, undercut in part by U.S.-China tensions. Yields had seen a volatile trade last week, with the 10-year rate dipping to a five-month low before bouncing back to briefly trade above 1.30%.

Data released during the New York trading session shows that new home sales fell 6.6% in June to an annual rate of 676,000, the lowest since the first month of the COVID-19 pandemic in early 2020, as high prices and a limited selection appeared to frustrate would-be buyers.

Meanwhile, the Treasury’s $60 billion auction of 2-year notes “went well, but only after a near-perfect pre-auction setup,” said Jefferies economists Thomas Simons and Aneta Markowska, in a note.

The main event this week is likely to be the two-day meeting of the Fed’s policy-setting Federal Open Market Committee, which will conclude on Wednesday.

Policy makers are expected to discuss plans around eventually slowing the pace of the Fed’s monthly bond purchases. But investors expecting clear answers about the crucial questions of when the tapering will start and the pace of any pull back will likely be disappointed, economists said.

Read: Fed to tiptoe toward tapering this week

What are analysts saying?

On Wednesday, the Federal Open Market Committee is largely expected to keep the target range for the fed funds unchanged at 0.00%-0.025%, and maintain the FOMC’s $120 billion in monthly asset purchases, said Lindsey Piegza, chief economist of Stifel. “The highlights, therefore, will come from the statement as well as the press conference,” she wrote in a Monday note.

“While the prepared communication is unlikely to reveal any significant changes in terms of the Fed’s patient position still waiting for ‘substantial further progress,’ the chairman’s comments could offer additional insight into the Fed’s thinking on a number of issues,” she said. That includes whether inflation is still transitory, how much COVID-19’s delta variant is weighing on policy makers’ thinking, and if FOMC members are getting ready to outline a time frame for tapering purchases.

At UniCredit, analysts said in a Monday note that “in all probability, the next change in the Fed’s monetary-policy stance will be a reduction of its asset purchases.”

“However, there is widespread belief that the central bank will not become more concrete in this regard at its upcoming meeting. Consequently, there is a decent chance that the FOMC meeting will not provide a major impulse towards higher yields,” they said. “An extended period of (extremely) low government bond yields, in turn, would support general market sentiment, particularly if the rates complex remains immune to thriving developments in other market segments.”

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