Bond Report: 2-year yield hits highest in a month, 10-year rises near 1.50% as market awaits Powell and company

Yields for U.S. government bonds on Monday rose 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

    was yielding 1.499%, up 3.7 basis points, compared with 1.462% on Friday at 3 p.m. ET.
  • The yield for the 30-year Treasury bond

    was at 2.189%, up 3.8 basis points, versus 2.151% to end last week.
  • The 2-year Treasury note

    rate was at 0.159%, compared with 0.151% on Friday.

Monday’s climb for the 2-year Treasury drove it to the highest level since May 13, according to data compiled by Dow Jones Market Data.

Drivers for the fixed-income market

All eyes remain on the Fed this week. Trading action on Monday was—and will likely be— mostly muted as investors await 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 inflation’s climb 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.

Since inflation can erode Treasurys’ fixed value, investors will be 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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