Bond Report: Treasury yields tick lower as investors await Fed meeting

Bond Report

U.S. Treasury will auction $35 billion 7 year notes Tuesday

U.S. Treasury yields fell slightly on Tuesday as investors looked forward to the outcome of the Federal Reserve’s two-day policy meeting when Fed Chairman Jerome Powell will speak on the economic outlook on Wednesday.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
0.619%

was virtually unchanged at 0.652%. The 2-year note yield
TMUBMUSD02Y,
0.179%

fell 2.1 basis points to 0.209%. The 30-year bond yield
TMUBMUSD30Y,
1.212%

fell 0.9 basis point to 1.240%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

Few analysts expect expect announcements of new initiatives from the Fed after the central bank implemented a raft of measures to buy government, corporate and municipal debt in recent weeks, but Powell could offer a broad assessment of the central bank’s actions to date, and why it responded in such a vigorous manner to combat the economic shock of the COVID-19 pandemic.

See: Fed has simple goal this week — project confidence in face of the unknown

The central bank expanded the scope of its municipal lending program on Monday, opening it up to more local governments and cities, many of which have experienced a sharp drop in tax revenues. The Fed said it would now purchase bonds from counties with a population of at least 500,000 residents and U.S. cities of at least 250,000 residents.

In economic data, the U.S. trade deficit widened to $64.2 billion in March. An April reading of the consumer confidence index is due later at 10 a.m. ET.

The Treasury Department will auction off $35 billion of 7-year notes in the afternoon. The sale could weigh on trading for government paper, but Monday’s sale of shorter-term debt saw strong appetite among bond buyers.

Read: Here’s the latest on the Fed’s rescue programs to keep credit flowing during the coronavirus pandemic

What did market participants’ say?

“We believe the Chairman will assert that policy makers in general have substantial firepower left in reserve, even though rates are near zero already. The overall thrust of the policy statement will be to express confidence in the ability of the economy to overcome the near-term damaging effects of the lockdown imposed by the health crises and to help shift the focus away from the second quarter contractions towards a third quarter rebound in the economy,” said Steven Ricchiuto, U.S. chief economist for Mizuho Securities, in a note.

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