Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Fed meeting may test low U.S. Treasury yields

EconomyJul 26, 2021 01:27AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: A picture illustration shows U.S. 100 dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

By Karen Pierog

CHICAGO (Reuters) - The $22 trillion market for U.S. Treasury securities may get a reality check from the Federal Reserve this week following a plunge in interest rates that bucked expectations of higher yields this year as the economy rebounds from the COVID-19 pandemic.

Yields, which move inversely to prices, have been in a downward trend since the last Federal Open Market Committee meeting in June. The market initially perceived the Fed as being a bit hawkish as policymakers last month projected an accelerated timetable for rate hikes and opened discussions on ending crisis-era bond purchases amid a backdrop of rising inflation.

But the benchmark 10-year note yield, which rose as high as 1.776% in late March, fell to its lowest level since February on Tuesday at 1.1280%. It, along with the 30-year bond yield, were trading about 30 basis points lower on Friday than where they were just after the meeting.

The yield curve has also flattened since then, with the gap between two- and 10-year notes shrinking to its smallest level since February.

The FOMC meets on Tuesday and Wednesday. George Goncalves, head of U.S. macro strategy at MUFG, said the central bank needs to push back a bit against the market and stick with an optimistic outlook that shows the economy has a "decent runway" and that the central bank still intends to taper its $120 billion in monthly debt purchases.

"That's the right message and the positive spin that the Fed can deliver next week, which would then stop these unabated, nonstop rallies," he said.

Morgan Stanley (NYSE:MS) strategists also believe the meeting could be an important catalyst for pushing yields higher.

"An upbeat assessment of the economy from the Fed and continued discussion of tapering could ring hawkish to the market," they wrote in a U.S. Economics & Global Macro Strategy report on Thursday.

They noted that the market's reaction since the June meeting was due to technical factors like the unwinding of bets that the yield curve would steepen and position squaring, exacerbated by concerns over the Delta variant of the coronavirus and a slowdown in economic growth.

While the FOMC's June meeting statement "implicitly declared victory" on the COVID-19 front, the spread of the Delta variant and slowdown in vaccinations may change the Fed's tune this month, according to analysts at Jefferies (NYSE:JEF).

"If anything, the tone of the FOMC statement and the press conference is likely to be incrementally more dovish than the June meeting given the renewed health concerns," they said in a recent report.

Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said data will have to drive the market, which may have swung from being too exuberant about growth expectations to too negative now.

"As (Fed Chair Jerome) Powell said, it's going to take a good six months to really know on the inflation front how much of this is transitory," she said. "And I think we'll learn a lot more over the second half of this year too in terms of the staying power of the economy."

Fed meeting may test low U.S. Treasury yields

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email