By Sunny Oh

Treasury yields rose Monday as investors geared up for a Federal Reserve policy meeting this week that's seen as virtually certain to deliver a rate increase.

How are Treasurys doing?

The 10-year Treasury note yield climbed 2.6 basis points to 2.874%. The 2-year note yield rose 2.6 basis points to 2.320%. The 30-year bond rate was up by 2.3 basis points to 3.104%.

Bond prices move in the opposite direction of yields.

What's driving Treasurys?

A lack of economic data ahead of Wednesday's policy meeting will keep investors focused on the Federal Reserve. This will be the first meeting chaired by Jerome Powell since he succeeded Janet Yellen at the helm of the central bank in early February. He will also hold his first news conference as chairman. The policy statement will also be accompanied by the so-called dot plot, an aggregate of policy makers' forecasts for future interest rates. Analysts consider a quarter percentage point hike a near-certainty, with the futures market pricing in the increase to 100%.

Once the Fed's portfolio-cutting measures reaches its full scale, analysts at the Council on Foreign Relations estimated the bond market will have to absorb long-dated Treasury issuance worth 5 percent of GDP every year. Concerns that this removal of monetary accommodation will remove a backstop on falling bond prices have kept a few investors on edge.

What did market participants say?

"As the Fed's balance sheet continues to shrink at an increasing rate, the Treasury Department is flooding the front-end of the market with supply, and credit spreads are edging higher (albeit off of extremely low levels), the specter of more meaningful fallout from the 'gradual' removal of accommodation looms," said Ian Lyngen and Aaron Kohli, fixed-income strategists at MarketWatch.

What else is on investors' radar?

The European Union agreed Monday on terms (http://www.marketwatch.com/story/eu-agrees-on-two-year-brexit-transition-deal-2018-03-19) of Britain's two-year transition deal after leaving the bloc in March 2019, according to an EU official familiar with the discussions. The decision will give British lawmakers 21 months to complete their terms of exit.

The European Central Bank is beginning to start discussions on the rate increase path as even the doves on the Executive Board, its policy-making committee, have accepted its bond-buying program should end this year, Reuters reported (https://www.reuters.com/article/us-ecb-policy/ecb-debate-shifting-to-interest-rate-path-from-qe-sources-idUSKBN1GV1DT).

What other assets are on the move?

The yield for the British 10-year government bond rose 6.4 basis points to 1.499%. The German 10-year bond yield was up by 3.0 basis points to 0.600%.

 

(END) Dow Jones Newswires

March 19, 2018 09:38 ET (13:38 GMT)

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