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Bond Report: 10-year Treasury yield holds below 1.50% as market awaits Powell and company

Yields for U.S. government bonds on Monday were holdings steady as investors awaited a policy update from the Federal Reserve, with fixed-income investors closely watching the central bank’s views on inflation.

The Fed’s two-day policy meeting begins Tuesday and concludes at 2 p.m. Eastern Time Wednesday, with an updated statement and dot plots, or projection of the members of the Fed’s interest-rate outlook.

How Treasurys are performing
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.463%

    was yielding 1.463%, compared with 1.462% on Friday at 3 p.m. ET.
  • The yield for the 30-year Treasury bond
    TMUBMUSD30Y,
    2.152%

    was at 2.150%, versus 2.151 to end last week.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.153%

    rate was at 0.149%, compared with 0.151% on Friday.

On Friday, the 10-year saw its steepest weekly slide since June 12, 2020 and the 30-year log its sharpest weekly decline since Dec. 11.

Drivers for the fixed-income market

All eyes on the Fed this week. Trading action on Monday was—and will likely be— mostly muted as investors awaited the important policy update.

Fed Chairman Jerome Powell is expected to reiterate the view that the central bank sees evidence of inflation powering higher as a short-lived phenomenon. Market participants, however, will be attuned to other elements of the Fed’s policy statements, including its projection for interest rates in the future and Powell’s news conference at 2:30 p.m. on Wednesday.

Last week, fixed-income markets shook off U.S. consumer-price data published Thursday that showed that inflation over the past year escalated to a 13-year high of 5% from 4.2% in the prior month. That put it at the highest level since 2008, when the cost of oil hit a record $150 a barrel. Before that, the last time inflation was as high was in 1991.

However, because inflation can erode Treasurys’ fixed value, investors will be lazer focused on any concerns about inflation from the Fed.

What strategists are saying

“A patient Fed could help lower Treasury yields a bit further but we feel that 10-year Treasurys are a bit rich at yields below 1.5%. We still look for yields to be over 2% by the end of the year,” wrote Steve Barrow, head of G-10 strategy at Standard Bank, in a Monday note.

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