Fed policy update set for 2 p.m. Eastern
U.S. Treasury yields tipped higher on Wednesday ahead of the latest policy update from the Federal Reserve and as global equity benchmarks climbed, undercutting some appetite for assets perceived as safe like government paper.
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Where are Treasury yields?
The 10-year Treasury yield was at 2.392%, compared with 2.374% late Tuesday. The 2-year yield , adding to recent yield gains in October, traded at 1.608%, versus 1.592% in the previous session. The 30-year bond was yielding 2.896%, compared with 2.873% 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 Fed gathering isn't expected to produce any changes to monetary policy. 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. 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.
Meanwhile, 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?
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)
"Due to an erratic correlation between the ADP and [nonfarm-payroll] releases, [Jefferies] Economics has tended to shy away from revising payroll forecasts based on ADP. While today's data came in above market expectations, this release is unlikely to have a significant effect on payroll forecasts," wrote Ward McCarthy, chief financial economist at Jefferies, in a research note.
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?
Global equities are 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 are poised to trade at all-time highs on 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 08:51 ET (12:51 GMT)