By Sunny Oh
U.S. Treasury yields slipped on Wednesday after the Federal Reserve’s policy statement and interest-rate projections indicated the central bank would keep rates at current levels next year.
What are Treasurys doing?
The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% fell 4.7 basis points to 1.786%, while the 2-year note rate /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y 0.00% declined 4.1 basis points to 1.611%, after touching a monthlong high on Tuesday. The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y 0.00% shed 3.7 basis points to 2.218%.
What’s driving Treasurys?
As expected, the Fed stood pat at its policy update, leaving its benchmark interest rate at a range between 1.5% to 1.75%. This concludes a busy year for the central bank which has lowered interest rates three times this year and begun to expand its balance sheet through repo auctions and U.S. Treasury bill purchases.
The Fed’s so-called dot plot showed the median forecast was for no rate hikes in 2020, with four members of the Federal Open Market Committee indicated they anticipated a hike next year. The Fed also indicated expectations for real gross domestic product growth to stay near 2% over the next three years.
At the post meeting press conference, Fed chair Jerome Powell said it would take a significant and sustained increase in inflation before he would contemplate an increase to borrowing rates. Analysts said this reflected the central bank’s dovish stance as price pressures have struggled to heat up.
On international trade policy, White House advisers Larry Kudlow and Peter Navarro have both indicated that tariffs scheduled to hit Chinese goods on Dec. 15 are “still on the table,” following a report from the Wall Street Journal that said both parties were bracing for a delay of a tariff increases on China goods on Sunday, which would be read as an escalation of tensions.
In economic data, the U.S. consumer price index for November increased by 0.3%. Economists surveyed by MarketWatch expect the index rose 0.2% in November from the previous month.
What did market participants’ say?
”The Fed forward guidance is crystallizing around a very high threshold for moving rates higher, keeping rates anchored at the front-end. That’s definitely a positive for Treasurys,” said Ed Al-Hussainy, senior interest rate and currencies analyst at Columbia Threadneedle, in an interview with MarketWatch.
“The ‘mid-cycle adjustment’ is complete and now it’s time for the Fed to sit back and assess the landscape as the economy unfolds,” Charlie Ripley, Senior Investment Strategist for Allianz Investment Management, wrote in a note. “Overall, this was a relatively benign statement as the dots are telling us that monetary policy will most likely remain unchanged throughout the next year which should help inject some certainty into the markets.”