U.S. Government Bonds Weaken Ahead of Fed Rate Decision
March 21 2018 - 10:24AM
Dow Jones News
By Akane Otani
U.S. government prices edged lower Wednesday ahead of the
conclusion of the Federal Reserve's latest policy meeting.
The yield on the benchmark 10-year U.S. Treasury note recently
traded at 2.903%, compared with 2.881% Tuesday.
Yields, which rise as bond prices fall, have climbed three of
the past four trading days, as investors have trimmed bets leading
into the release of the Fed's March policy statement.
Analysts widely expect the central bank to raise short-term
interest rates by a quarter percentage point -- a move that would
mark the Fed's first interest-rate increase of the year, and its
sixth since late 2015. What is less certain is the extent to which
the central bank will adjust its so-called dot plot, which conveys
the interest-rate expectations of Federal Open Market Committee
members.
Back in December, the Fed's dot plot showed officials expecting
three rate increases in 2018 and two more in 2019. Since then,
investors have begun to bet that the median projection for 2018
could shift to four rate increases, in part due to a $1.5 trillion
tax cut package and a $300 billion, two-year federal funding
increase that they say could boost economic growth and spur a
pickup in inflation.
Recent data have suggested inflation, which threatens government
bonds by chipping away at the purchasing power of their fixed
payments, could be less robust than bond investors feared at the
start of the year. A gauge of consumer prices rose less than
expected in February, while wage growth slowed from the previous
month.
Still, bond investors remain wary ahead of the release of the
Fed's policy statement, saying any sign that officials are eyeing
more rate increases than previously signaled could trigger a fresh
wave of bond selling.
"Powell and the committee really need to walk a fine line," said
Sean Simko, head of fixed-income portfolio management at SEI
Investments. "We all know one rate hike is expected and it should
be received without disruption, but we could definitely see tremors
in the market if they try to weave in another hike."
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
March 21, 2018 10:09 ET (14:09 GMT)
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