U.S. Government Bonds Remain Steady as Fed Meeting Begins

By Gunjan Banerji Features Dow Jones Newswires

U.S. government bonds held steady Tuesday as the Federal Reserve's two-day policy meeting kicked off.

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The yield on the benchmark 10-year Treasury note closed at 2.374%, the same level as Monday, notching a second consecutive monthly gain. The yield on Treasurys maturing in two years rose Tuesday to 1.592% from 1.580%, also capping a second-straight monthly climb.

Yields moved in a narrow range Tuesday as the widely watched central bank meeting began. Officials are likely to leave short-term interest rates unchanged this week, gearing up to consider another rate rise at the next scheduled meeting in December.

"We're hitting a little bit of a pause button," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott. "It will be pretty quiet until the Fed meeting tomorrow."

Investors also have been watching for clues about who President Donald Trump intends to pick as the next Federal Reserve chair. Reports in recent days that the president was leaning toward Fed governor Jerome Powell have sparked some buying, as Mr. Powell appears less aggressive about raising rates than some other contenders, and could adopt a similar approach to Chairwoman Janet Yellen, some investors said.

Recent economic data has painted an optimistic picture of the economy. A gauge of consumer confidence rose near a 17-year high in October, according to the Conference Board. A measure of wages and benefits for workers known as the employment-cost index rose a seasonally adjusted 0.7% in July through September, the Labor Department said Tuesday, in line with what economists surveyed by The Wall Street Journal had expected.

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This could signal that the high employment rate is leading employers to boost salaries to retain and draw workers.

Still, signs have lingered that inflation remains lower than Federal Reserve officials would like, despite economic growth. Such data could prompt the Fed officials to issue a subtle but slightly more aggressive warning on the persistently low inflation pressures, Mr. LeBas said.

Inflation poses a threat to the value of long-term government bonds because it chips away at the purchasing power of their fixed payments and can spur the Fed to increase rates.

Given that the market expects the Fed to raise rates once more by the end of the year, "any warning on inflation would be significant," said Mr. LeBas.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

(END) Dow Jones Newswires

October 31, 2017 17:51 ET (21:51 GMT)