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Bond Report: U.S. Treasury yields bounce off lows after Fed signals willingness to keep rates low

Bond Report

Long-term Treasury yields came off their session lows on Wednesday after the Federal Reserve indicated it would keep interest rates at current levels until the end of 2023.

What are Treasurys doing?

The 10-year Treasury note yield

was down 0.5 basis point to 0.674%, after trading as low as 0.658%, while the 2-year note

was virtually unchanged at 0.137%. The 30-year bond yield

was steady at 1.430%, after touching an intraday nadir of 1.405%. Bond prices move inversely to yields.

What’s driving Treasurys?

The Fed’s policy statement said the central bank would keep interest rates near zero until inflation overshot 2% for a sustained period and the U.S. hit maximum employment.

The Fed also released its economic projections through 2023. Along with those forecasts, the Fed’s so called “dot plot” of likely interest rates showed that most officials anticipate rates will remain near zero until the end of 2023.

After the statement, long-term Treasury yields rose faster than their shorter-term peers, steepening the yield curve.

Investors said the bond-market reaction could reflect disappointment about hopes that the Fed would shift its asset purchases towards longer-dated maturities which would have anchored those yields.

Read: Fed to signal interest-rate hikes won’t be an issue until 2024

In economic data, U.S. retail sales rose 0.6% in August, slightly shy of the consensus estimate of 0.7%. Stripping out for auto sales, retail spending grew 0.7%.

What did market participants’ say?

“While there wasn’t any particular degree of urgency, the decision does offer a dovish dose to the market’s understanding of the path of rates – lower for longer,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

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