Fed policy update set for 2 p.m. Eastern
Long-dated Treasury yields retreated, as prices tipped higher, on Wednesday, following an update to the U.S. Treasury Department's quarterly refundings, which didn't mention issuing ultralong bonds.
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Treasury Secretary Steven Mnuchin has been promoting the idea of issuing bonds with maturities at 50-years or 100-years, which might have put pressure on 10-year and 30-year Treasurys.
Meanwhile, investors also awaited the latest update to the Federal Reserve's latest monetary policy statement, which will influence bond trading.
Where are Treasury yields?
The 10-year Treasury yield was off 1.7 basis points at 2.357%, compared with 2.374% late Tuesday, while the 30-year bond was down 2.8 basis points at 2.845%, compared with 2.873% in the previous session.
The 2-year yield , meanwhile, picked up 1.6 basis points at 1.608%, compared with 1.592% on Tuesday.
Read: Fed statement may have treats for the hawks and the doves (http://www.marketwatch.com/story/fed-statement-may-have-treats-for-both-hawks-and-doves-2017-10-27)
Bond prices move inversely to yields.
What's driving the market?
The U.S. Treasury Department during its so-called quarterly refunding announcement didn't reference ultralong bonds, but did say it would hold longer-term bond auctions at $62 billion. Treasury said it expects an increase in coupons in February to meet its 2018 obligations.
Mnuchin, which has championed the idea of superlong bonds to fund the government, signaled earlier this week that appetite for such instruments was cool (http://www.marketwatch.com/(S(o54cffqhipqemynavg0qd455))/story/mnuchin-says-treasyrt-did-not-find-a-lot-of-demand-for-ultra-long-bonds-report-2017-10-30). A failure to signal that a new batch of bonds that might compete with 10-year and 30-year debt, offered a bid to Treasurys on the longer end of the curve.
Meanwhile, although the Fed gathering isn't expected to produce any changes to monetary policy, bond investors are watching 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. The updated policy statement is due at 2 p.m. Eastern.
Slack in price growth and wages, with inflation running below the Fed's 2% annual target despite a healthy labor market, has helped to support buying in long-dated bonds because rising inflation chips away at a bond's fixed interest payments.
Separately, investors anticipate that former Fed Gov. Jerome Powell could be named head of the U.S. central bank to replace Chairwoman Janet Yellen as early as Thursday. Powell is perceived as a nominee that would less aggressive about raising interest rates and one who would favor further deregulation of the banking sector. Any surprises in the Fed selection could rattle Treasury markets.
What are strategists saying?
"It was just a sigh of a relief that there isn't going to be an ultralong bond on the long end of the curve," said Ward McCarthy chief financial economist at Jefferies. "At a minimum, Mnuichin has signaled that issuing ultralong bonds is not the priority that it was earlier this year," he said.
Donald Ellenberger, senior portfolio manager and head of multisector strategies at Federated Investors, said "I wouldn't be surprised if there were very few changes [to the Fed's policy statement] because nobody is really expecting anything since the market is expecting a hike in December and the Fed hasn't walked that back."
Hussein Sayed, chief market strategist at FXTM, says "if Stanford University's professor of economics, John Taylor, is nominated instead, expect big moves in Treasury yields and the dollar, which could appreciate sharply against its peers." Taylor, who has been a front-runner to lead the Fed, is viewed as a more hawkish candidate, with a rule named after him, using targeted inflation and full employment, forecasting rates that should be much higher than current levels.
Read:What investors need to know about Fed candidate John Taylor's famous rule (http://www.marketwatch.com/story/what-investors-need-to-know-about-john-taylor-and-the-fed-candidates-famous-rule-2017-10-17)
Also read: Yellen says Fed should be 'wary' of raising rates 'too gradually' (http://www.marketwatch.com/story/yellen-says-fed-should-be-wary-of-raising-rates-too-gradually-2017-09-26)
What data are in focus?
What are other assets doing? Equities across the world are mostly climbing, highlighting an uptrend in global economic growth and luring investors out of the safety of bonds and into assets perceived as riskier like stocks. Notably, the Dow Jones Industrial Average , the S&P 500 index and the Nasdaq Composite Index set fresh all-time intraday records early Wednesday (http://www.marketwatch.com/story/sp-dow-poised-for-fresh-records-at-open-as-investors-take-heart-from-earnings-2017-11-01).
(END) Dow Jones Newswires
November 01, 2017 12:36 ET (16:36 GMT)