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U.S. Treasury yields fell Tuesday as the Federal Reserve was set to start its two-day meeting where its policy making committee is expected to lower interest rates for the third time this year.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -0.53% was down 2 basis points to 1.833%, coming off a six-week high hit on Monday, while the 2-year note rate TMUBMUSD02Y, -0.95% edged 1.2 basis points lower to 1.638%. The 30-year bond yield TMUBMUSD30Y, -0.44% slipped 3.1 basis points to 2.318%.
What’s driving Treasurys?
The Federal Open Market Committee is likely to cut its benchmark fed funds rate down to a range between 1.50%-1.75% on Wednesday, based on market pricing.
At the same time, analysts say the central bank is likely to couple the decision with little forward guidance in the policy statement and the post-meeting news conference. In that way, the Fed could stay aligned with its previously stated stance that recent rate cuts are part of a “mid-cycle” adjustment, giving time for the U.S. central bank to see how the impact of more accommodative monetary policy and easing international trade tensions shakes out.
In the U.K., the Labour party said it would support the U.K. Prime Minister’s Boris Johnson’s bill to hold an early election in mid-December as he tries to secure a breakthrough on a Brexit deal.
See: Bond investors confident of Fed rate cut this week but pare bets on further easing
News reports said Japanese insurance companies were rasing their allocations to foreign bond and stocks for the six months through March 2020. Japanese insurers carry significant holdings of U.S. Treasurys and corporate debt because they offer richer returns than Japanese subzero yielding government debt.
In economic data, Case-Shiller home prices for August is set for release at 9 a.m., followed by the U.S. Conference Board’s consumer confidence index numbers and last month’s pending home sales data at 10 a.m.
What did market participants’ say?
“The FOMC meeting gets underway today and will conclude tomorrow but investors will be made to wait for the updated dot plot until December,” wrote Kenneth Broux, a strategist at Société Générale. “What looks like a breakthrough between the U.S. and China suggests the Fed has the luxury to take out more insurance and can bide its time on forward guidance until after the APEC summit next month.”
