By Sunny Oh
Treasury yields rose slightly Tuesday as a Federal Reserve meeting kicked off, which could show policy makers scaling back rate-hike projections and outlining a plan to end a runoff of its asset portfolio, amid growing skepticism that rates will be hiked further in 2019.
The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% was up 0.9 basis point to 2.614% The 2-year note yield /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y 0.00% rose 1.2 basis points to 2.471%, while the 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y 0.00% picked up 1.3 basis points to 3.027%. Bond prices move inversely to yields.
The gathering of the rate-setting Federal Open Market Committee is expected to produce no rate moves; however, it the FOMC is expected to trim its growth and inflation forecasts, and to lower its quarterly projections for interest rates.
The Fed’s policy statement will be closely scrutinized for remarks on the economic outlook. Analysts say the central bank may use March’s meeting to outline what the central bank needs to see to move out of its newfound patient stance on rate moves.
“This is an opportunity to set the parameters around the pause. Its an opportunity to articulate what it will take to shift out of this patient regime,” said Ed Al-Hussainy, a senior rates strategist for Columbia Threadneedle.
The fed-fund futures market, where traders can bet on interest-rate changes, indicates around 65% of market participants expect the central bank to stand pat between 2.25% to 2.50% for the rest of 2019, with the rest expecting a cut, CME Group data shows.
“After an about-face at the start of the year with the tone of the committee shifting from aggressive to patient, the market read the change to mean no further policy adjustments…This week we will see if committee members too have adjusted their expectations for additional rate hikes,” wrote Lindsey Piegza, chief economist for Stifel.
The Wall Street Journal reported that U.S.-China trade talks were in its final stages , and that U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin would fly to Beijing next week, according to sources familiar with the matter. But a Bloomberg News report said Chinese officials may attempt to roll back some concessions.
In economic data, factory orders rose 0.1% in January, another piece of economic data pointing to softening growth in the first quarter.
Australian bonds rallied after the Reserve Bank of Australia’s minutes from the March meeting added to concerns over slowing economic activity, strengthening expectations for an interest-rate cut. The 10-year Australian government bond yield /zigman2/quotes/211347066/realtime BX:TMBMKAU-10Y 0.00% fell around 4 basis points to 1.93%, Tradeweb data show.