Treasury yields on pause ahead of ECB meeting Bond Report

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European Central Bank (ECB) President Mario Draghi

Treasury prices were little-changed Wednesday as investors were reluctant to make big bets ahead of the European Central Bank policy meeting scheduled for Thursday.

Some analysts suggested that markets also were digesting big moves from the previous session when yields dropped following a surprisingly weak economic report from the services sector of the U.S. economy.

After weaker-than-expected data from the Institute for Supply Management’s nonmanufacturing report, investors dialed down expectations for an interest-rate increase at the Federal Reserve’s September policy meeting. The Federal Open Market Committee is slated to meet on Sept. 20-21.

On Wednesday, job openings in July came in stronger than expected, confirming continued strength in the labor market.

“Bond markets are still in thrall of central banks, though most of the action has been in currency markets lately,” said Kathy Jones, chief fixed-income strategist at Schwab.

“Watching economic data for policy clues is difficult as data have been conflicting, with weak manufacturing contradicting solid employment,” Jones said.

The Fed’s latest beige book report had the same modestly positive tone seen in the last few surveys and didn’t substantially alter the outlook for interest rates.

The benchmark 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.07% , slipped half a basis point to 1.539%.

The yield on the 10-year note is near its historic low, having fallen about 80 basis points since the start of the year.

“Long-term Treasury yields are likely reflecting the natural interest rate, which is probably about 1%—a lot lower what it used to be,” said Kathy Jones, chief fixed income strategist at Schwab.

The yield on the 2-year Treasury note /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -0.08% rose less than a basis point to 0.742%. Yields fall when prices rise and vice versa.

And the yield on the 30-year Treasury bond /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -0.05% was virtually unchanged at 2.236%.

Some analysts suggested that demand for longer-dated government bonds has been driving Treasury yields lower.

“Investors were scrambling for duration ahead of the ECB meeting. Even though economic data aren't screaming for more action, the bank will continue its current stimulus program,” said David Schnautz, rates strategist at Commerzbank.

The European Central Bank is schedule to hold its policy meeting on Thursday and largely expected to update its outlook on the eurozone economy, giving investors clues about future stimulus measures.

Investors don't expect additional stimulus measures after this meeting, though some anticipate a change in rules for the bank to be able to continue to purchase assets beyond the central bank’s self-imposed limit.

Pressure mounts on ECB to do QE3, but Thursday is seen as close call

In Europe, the yield on Germany’s 10-year bond /zigman2/quotes/211347112/realtime BX:TMBMKDE-10Y +3.59% , known as the bund, fell 1.3 basis points to negative 0.118%, while 30-year bond yields /zigman2/quotes/211347116/realtime BX:TMBMKDE-30Y +1.95% fell 3.7 basis points to 0.40%.