Treasury yields edge lower as investors await Fed meeting

Treasury yields edged lower Monday as investors awaited a meeting this week of Federal Reserve policy makers that’s expected to see the central bank speed up its wind-down of monthly asset purchases in the face of stubbornly high inflation.

What are yields doing?
  • The yield on the 10-year Treasury note

    fell to 1.476%, down from 1.487% at 3 p.m. Eastern on Friday. Yield and debt prices move in opposite directions.

  • The 2-year note yield

    was 0.661%, little changed from 0.66% on Friday afternoon.

  • The yield on the 30-year Treasury bond

    fell to 1.864% from 1.883% late Friday.

What’s driving the market?

The benchmark 10-year yield ended little changed on Friday after data showed inflation in November rose at its fastest year-over-year pace in nearly 40 years at 6.8%, but was slightly below expectations. For the week, however, the yield bounced 14.5 basis points for its largest such rise since the week ended Feb. 19.

All eyes are on the two-day meeting of the Fed’s policy-setting Federal Open Market Committee, or FOMC, that will conclude Wednesday. Fed Chairman Jerome Powell last month opened the door last month to speeding up the tapering process, while hot inflation data last week helped cement market expectations for such a move.

Read: Highest U.S. inflation in nearly 40 years will force Federal Reserve’s hand

A faster taper, which is seen potentially ending the Fed’s asset purchases by March, would also set the stage for earlier rate increases. Investors will be paying close attention to the Fed’s updated economic projections and the latest version of the so-called dot plot, which maps policy maker’s rate expectations.

See: El-Erian says Fed use of ‘transitory’ to describe inflation was its worst call ever

Several other central banks are meeting this week, including the European Central Bank on Thursday, The ECB is expected to signal that it plans to end its additional pandemic-inspired asset purchases, a 1.85 trillion euro ($2.1 trillion) program known as the Pandemic Emergency Purchase Program, or PEPP, in March.

Investors are also paying heed to the spread of the omicron variant of the coronavirus that causes COVID-19.

What are analysts saying?

“If the FOMC announces a faster taper but acknowledges uncertainty, the market reaction may be limited, as it was after last week’s CPI data,” said Kit Juckes, global macro strategist at Société Générale, in a note. “However, two more weeks of evidence that omicron causes low enough rates of hospitalization and death that experts conclude increased restrictions will be temporary, could mean the new year starts with the focus firmly on accelerated and extended Fed tightening.”

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