BOND REPORT: Treasury Yields Edge Lower Ahead Of Data, Fed Policy Update

By FeaturesDow Jones Newswires

Treasury yields edged lower on Wednesday as investors awaited the Federal Reserve's latest update on monetary policy, which also marks the last meeting for Chairwoman Janet Yellen as she hands the reins to her successor, Jerome Powell.

A wave of economic reports are also on deck, including a reading on private-sector employment.

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How are Treasurys performing?

The 2-year note yield , the most sensitive to changes to monetary policy, edged lower to 2.121%, compared with 2.124% late Tuesday in New York. The yield on the 10-year Treasury note down 1.8 basis point 2.707%, versus 2.725% a day earlier. The 10-year bond yield has been hanging around the highest level since around April 2014.

The 30-year bond yield retreated by 2.7 basis points to 2.953%, compared with 2.980% late Tuesday, which marked its highest since March 2017.

Bond prices move inversely to their yields.

What is driving the market

Bond yields have been mostly climbing, suggesting that investors are anticipating that a batch of measures to rev up the U.S. economy, including corporate tax cuts, may help to put an end to a protracted period of bond buying, which has helped hold government paper at historically low levels.

Signs that the Fed (http://www.marketwatch.com/story/fed-to-take-a-step-toward-a-march-interest-rate-hike-2018-01-26), which will release its updated policy statement at 2 p.m. Eastern Time, is adopting a more aggressive posture to ending easy-money policies and dial up interest rates, could have a chilling effect on bond purchases and stocks, which have been sensitive to the prospect of a rapid rise in borrowing costs.

Moreover, Wall Street investors will closely watch the central bank's language around stubbornly low inflation, which has hung around the Fed's 2% annual target, and the legislative influence of President Donald Trump's administration on the sluggish dollar and the highflying Dow Jones Industrial Average and S&P 500 index . Analysts have recently attributed the recent pullback in equities (http://www.marketwatch.com/story/dow-set-to-stabilize-after-shedding-540-points-in-2-days-2018-01-31) to the rise in yields, which can lure funds away from risk assets.

Late Tuesday, reaction to Trump's first official State of the Union address was mostly muted, but the president did propose a $1.5 trillion infrastructure-spending bill, which also could weigh on bonds.

What are strategists saying?

"The shorter-dated bond yields have already being climbing noticeably for weeks with the 10-year note rising to its best level since April 2014 and the yield on the two-year note hitting a nine-year high. Market participants probably expect to see a pickup in global growth, and in turn inflation, which should see the major central banks, including the Federal Reserve, turn more hawkish," said Fawad Razaqzada, market analyst at Forex.com, in a Wednesday research note.

"The Fed has already started to shrink it huge $4.5 trillion balance sheet, while the other major central banks have all dropped their dovish stances. As concerns rise over receding monetary support from central banks," he said.

What other data are in focus?

What other assets are in focus?

The German 10-year government bond , known as the bund, was at 0.669%, compared with 0.693%, according to FactSet data. Yields in the eurozone have been mostly rising along with the U.S. bond yields amid what has been described as a global, synchronized economic improvement, marked by a tapering of quantitative-easing measures by the European Central Bank.

(END) Dow Jones Newswires

January 31, 2018 08:02 ET (13:02 GMT)

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