Yields edge higher before Fed meeting statement

U.S. Treasury yields edged higher on Wednesday

  
U.S. currency is seen in this picture illustration taken March 6, 2020. Image used for illustrative purpose

U.S. currency is seen in this picture illustration taken March 6, 2020. Image used for illustrative purpose

REUTERS/Mike Segar/Illustration

NEW YORK- U.S. Treasury yields edged higher on Wednesday before the Federal Reserve is due to conclude its two-day meeting, with investors focused on any signals that the U.S. central bank is close to paring bond purchases or becoming more concerned about high inflation.

The Fed will conclude its latest policy meeting weighing the risks of a COVID-19 resurgence in the United States and a potentially slower economic recovery against a developing inflation threat that had been its main focus. 

“The focus is going to be on the press conference and what Chair (Jerome) Powell’s thoughts are going to be on tapering,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York.

“The thing that we would be looking to hear is hints on when they might start tapering asset purchases, and perhaps the pace of tapering asset purchases once they begin, whether they favor tapering MBS sooner than Treasuries as well as perhaps what the criteria are for when they feel that the economy has reached substantial further progress on employment as well as inflation,” Rajappa said.

Powell has said that high inflation readings are likely temporary as the economy reopens from COVID-related business shutdowns and has expressed concerns about the labor market recovery. Some Fed officials, however, have warned that rising price pressures may be persistent.

Treasury yields are trading near five-month lows, reflecting a bearish view of the economy.

Benchmark 10-year Treasury yields rose three basis points on Wednesday to 1.268%. They fell to 1.128% on July 20, the lowest since February.

The yield curve between two-year and 10-year notes steepened two basis points to 106 basis points. It reached 94 basis points on July 20, the flattest since February.

Breakeven rates on five-year Treasury Inflation-Protected Securities, a measure of expected annual inflation, rose two basis points to 2.61%.

(Editing by Bernadette Baum) ((karen.brettell@thomsonreuters.com))


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