Bond Report: U.S. Treasury yields tick lower ahead of this week’s Fed meeting

United States

U.S. Treasury yields fell early Monday’s trade as investors geared up for this week’s Federal Reserve meeting that could see bond traders pitted against the U.S. central bank.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 1.620% fell 2.1 basis points to 1.614%, after hitting its highest levels in a year on Friday, while the 2-year note rate TMUBMUSD02Y, 0.153% edged 0.2 basis point to 0.153%. The 30-year bond yield TMUBMUSD30Y, 2.371% slid 3.3 basis points to 2.368%.

What’s driving Treasurys?

Investors will focus on the Federal Reserve’s meeting this week, where investors will watch if the central bank offers any new thoughts on a sharp rise in long-term bond yields this year. Some are hoping the Fed will carry out measures to ease pressure on the Treasurys market including an extension of exemptions to the supplementary leverage ratio.

But analysts warned the Fed is likely to stand pat until higher government bond rates started to weigh on equity and corporate bond prices, and thus undoing the efforts by the central bank to loosen financial conditions.

See: Markets set up for disappointment from Fed meeting as bond yields renew rise

The Empire State manufacturing index increased to 17.4 in March from 12.1 in February, with the report also pointing to inflationary pressures as the prices paid component jumped to its highest reading since 2011.

U.S. Treasury Secretary Janet Yellen said the stimulus bill signed last week would help generate inflation, but that it was unlikely to last.’

What did market participants say?

“Rate volatility has caused discomfort in the markets, but it’s difficult to sense any fallout yet in the real economy. Instead, the global economy is having a harder time dealing with the pandemic right now than higher rates that have followed the expectation the pandemic will not be a factor in 2022,” said Jim Vogel, an interest-rate strategist at FHN Financial.