By Sam Goldfarb

U.S. government bond yields crept higher Wednesday as investors awaited the conclusion of the Federal Reserve's two-day policy meeting.

In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 2.091%, according to Tradeweb, compared with 2.060% Tuesday.

Yields, which rise when bond prices fall, extended their climb from the second half of Tuesday's trading session following their sharp decline earlier that day.

Investors rushed to buy government bonds early Tuesday after European Central Bank President Mario Draghi signaled the bank could roll out fresh monetary stimulus as soon as its next policy meeting in July.

Investors aren't so sure what to expect from the Fed on Wednesday. Though many anticipate the central bank will start cutting interest rates this year, most don't expect the Fed to move this afternoon.

Federal-funds futures, which investors use to bet on the direction of interest rates, suggest there is a high probability the Fed will cut rates next month. Yet some strategists on Wall Street have their doubts, with Goldman Sachs analysts arguing that the "hurdle for such cuts is likely to be higher than widely believed."

Due to their sensitivity to central bank policies, short-term Treasurys could register the biggest reactions to any surprises coming out of Wednesday's Fed meeting.

If the Fed doesn't change its outlook, thereby hinting it won't cut rates in July, yields on two-year and three-year Treasurys could rise as much as 0.1 percentage point, Jim Vogel, interest-rates strategist at FTN Financial wrote in a note to clients.

With investors focused on the Fed meeting, just one investment-grade company, Edison International, issued bonds on Tuesday, according to LCD, a unit of S&P Global Market Intelligence. Activity was busier in the speculative-grade market, where more than $4 billion bonds were sold, according to LCD.

The average extra yield, or spread, that investors demand to hold U.S. investment-grade corporate bonds over Treasurys dropped to 1.24 percentage points Tuesday from 1.26 percentage points a day earlier, according to Bloomberg Barclays data. The average speculative-grade corporate bond spread also edged lower, dropping to 3.87 percentage points from 3.92 percentage points.

The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, was recently down 0.2% at 90.58.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

June 19, 2019 12:13 ET (16:13 GMT)

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