BOND REPORT: Treasury Yields Struggle For Direction As Traders Await Kickoff Of Fed Gathering

By Mark DeCambre, MarketWatch , Sunny Oh Features Dow Jones Newswires

U.S. Treasury yields mostly held their ground, after rising to an intraday high, on Tuesday as investors in government bonds awaited the start of the Federal Reserve's two-day policy meeting, which may offer Wall Street further clues about monetary policy, even if a rate increase isn't expected this time.

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Where are Treasury yields?

The 10-year Treasury yield was mostly unchanged at 2.373%, while, the 2-year yield , the most sensitive to shifts in interest rate expectations, added 0.8 basis to 1.588%. The 30-year bond yield , ticked 0.7 basis point down at 2.876%.

Bond prices mover inversely to yields.

What's driving the market?

The Fed gathering, which isn't expected to see any changes to monetary policy, was expected to begin later Tuesday. Bond investors will watch for policy makers' views on the health of the U.S. and global economy and expectations for wage growth and prices, which have risen tepidly, bedeviling economists. Slack in price growth and wages, running below the Fed's 2% annual target for inflation, despite healthy growth in jobs, has helped to support buying in bonds because rising inflation chips away at a bond's fixed value.

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President Donald Trump is set to reveal his choice for the next head of the Fed on Thursday, a White House official said (http://www.marketwatch.com/story/trump-to-announce-his-pick-for-fed-chair-on-thursday-2017-10-30)., and a number of reports indicate that Fed Gov. Jerome Powell, who is viewed as likely to be less aggressive in raising interest rates than some rival candidates, is likely to be named successor to Chairwoman Janet Yellen.

What data are in focus?

What are strategists saying?

"The yield curve is flattening. I think that's a result of the stronger data we've seen today. People are seeing the stronger data and thinking more rate hikes are in the cards," said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities. The yield curve refers to the graph drawing out the relationship between bond yields and maturities, and can narrow when rate increase expectations pushes up short-dated yields faster than longer-dated yields.

What are other assets doing?

The Bank of Japan left its monetary policy unchanged (http://www.marketwatch.com/story/bank-of-japan-leaves-monetary-policy-unchanged-2017-10-30) but communicated concerns about sluggish inflation and said it expects to maintain its accommodative policy stance. The BOJ's position contrasts with moves by the Fed, the European Central Bank and other major central banks, which are gradually moving away from or slowly winding down easing measures

The yield on the 10-year Japanese government bond was at 0.064%, compared with 0.059% in the previous session. In Europe, the 10-year German bond , known as the bund, was at 0.361%.

The yields on the 10-year Spanish bond was at 1.452%, versus 1.586% on last Friday. European yields have been reacting to a fight by Catalonia for its independence from Spain, which has implications for the integrity of the European Union and the euro .

(END) Dow Jones Newswires

October 31, 2017 13:09 ET (17:09 GMT)