Treasurys Inch Higher Ahead of Fed Decision

U.S. government bonds edged higher Wednesday morning ahead of the Federal Reserve's latest policy decision.

The yield on the benchmark 10-year U.S. Treasury note was recently at 2.363%, according to Tradeweb, compared with 2.374% Tuesday. Yields fall as bond prices rise.

Bond yields inched upward overnight, then fell Wednesday after data showed a closely-watched gauge of U.S. manufacturing activity pulled back from a 13-year high.

Still, some analysts warned against taking too much stock in the data, noting that the index continued to point to expansion in the U.S. economy.

Later Wednesday, investors will turn their attention to the Fed, which is set to conclude a two-day policy meeting. With the Fed widely expected to hold short-term interest rates steady at their November meeting, investors say they will be closely watching for any changes to officials' views on inflation, which has become a subject of debate within the central bank in recent months.

The Fed's preferred price gauge, the personal-consumer expenditures price index, has run under the central bank's 2% annual target for seven months.

The tepid readings have led some Fed officials to say they won't support another rate rise before seeing evidence that inflation is picking up -- something that some analysts and investors say could keep Treasurys rangebound for longer.

"Eventually, the Fed has to acknowledge in some shape or form that the price pressures just aren't as strong as they may have been anticipating, " said Charlie Diebel, head of rates at Aviva Investors.

While Mr. Diebel, among other investors, thinks the Fed is likely to push forward with its plan to raise rates in December, he believes further signs of weakness in inflation could put more pressure on the Fed to ease its plans for rate rises in 2018.

At their September policy meeting, Fed officials suggested they expect three rate increases in 2018, two in 2019 and one in 2020 -- a path some analysts said looked hawkish, given the lag in price increases.

"If inflation continues to undershoot, an aggressive Fed just doesn't look warranted," Mr. Diebel said.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

November 01, 2017 11:27 ET (15:27 GMT)