U.S. Treasury yields fell for a third day on Wednesday after the Federal Reserve suggested it would not raise interest rates in the next few years, supporting flows into the bond-market.
What are Treasurys doing?
The 10-year Treasury note yield
fell 9 basis points to 0.744%, its largest one-day drop since April 15, while the 2-year note rate
edged 2.9 basis points lower to 0.177%, marking its biggest daily drop in around a month. The 30-year bond yield
slipped 6.9 basis points to 1.516%.
What’s driving Treasurys?
The Fed’s two-day meeting concluded on Wednesday, with the central bank repeating its intention to keep policy accommodative as long as needed. Reflecting that stance, the central bank’s interest-rate projections showed members of its policy-setting group anticipated the fed funds rate to stay at zero until 2022.
Fed Chairman Jerome Powell said the central bank “not even thinking about thinking about raising rates.”
The Fed also appeared to take a downbeat view of the pace of the U.S. recovery. It projected the unemployment rate to fall to 9.3% at the end of the year, and to 6.5% at the end of 2021.
The central bank said it would keep bond purchases at least through its current pace, which approximately stands at $80 billion per month for Treasurys and $40 billion per month for agency mortgage-backed bonds.
The policy statement also showed the Fed had discussed the potential for capping bond yields for certain maturities, a policy known as yield-curve control.
In economic data, the U.S. May consumer price index fell 0.1%. MarketWatch-polled economists expect prices to be unchanged in May with consumer spending subdued by the coronavirus pandemic, after prices fell by 0.8% in April.
What did market participants’ say?
“I did not expect the Fed to get specific on some of the tools they had. They want to keep all their options open,” Kathy Jones, chief fixed-income strategist at Schwab Center for Financial Research, told MarketWatch
“This business about keeping rates near zero until 2022 — that’s a very big commitment. It’s a big indication how serious they think the economy’s problems are,” said Jones.
“The Fed’s letting the market know it’s going to be in for the long haul,” said Yung-Yu Ma, chief investment strategist for BMO Wealth Management, in an interview.