ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)


U.S. Treasury prices rose Tuesday, extending last session’s gains ahead of a Federal Reserve policy announcement as investors took advantage of this month’s sharp selloff. In early New York trading, benchmark 10-year notes gained 5/32 in price to yield 2.572%, according to Tradeweb. The 30-year bond rose 5/32 to yield 3.331%, while two-year notes increased 1/32 to yield 0.536%. Bond yields fall when prices rise.

Persistent selling in the past week lifted the 10-year yield as high as 2.62%, with bond investors on edge over when the Fed might increase its policy rate.

“The market is anticipating some Fed language change, which I still believe is a bit early as I can see the Fed punt their decision into next year,” said Tom di Galoma, head of fixed-income rates in New York at ED&F Man Capital Markets.

The central bank kicks off its two-day policy meeting Tuesday and delivers an updated policy statement at 2 p.m. EDT Wednesday, followed by a news conference with Fed Chairwoman Janet Yellen. Market participants are watching out for subtle adjustments in the way the Fed describes its outlook on policy.

The Fed currently states it plans to wait a “considerable” amount of time after its bond purchases are over before raising interest rates, and some investors are looking for a tweak to that timing. Any hint that the Fed is willing to raise rates before the widely expected mid-2015 would put a dent in Treasurys, traders say.

Still, despite worries about tighter monetary policy in the U.S., bond traders say there are plenty of factors keeping Treasury buyers around.

The U.S. is still showing little signs of inflation. A report Tuesday morning showed no change in producer prices in August, while the core index that excludes food and energy prices rose just 0.1%.

Moreover, economic conditions overseas are far from booming, keeping a lid on yields of other government bonds. That, in turn, puts an anchor on how far U.S. Treasury yields can rise, many bond managers say.

There are also looming geopolitical risks, from the conflict between Russia and Ukraine to a Scottish referendum Thursday that could see the nation split from the U.K., that has kept a steady flight-to-safety flow into Treasurys.

Longer term, many analysts still forecast the 10-year yield to rise to around 3% by the end of the year. The theme for rising rates continues to be expectations that the U.S. economic recovery will pick up steam, putting the Fed down a path of tighter policy in a year’s time.