By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — Treasury prices dropped Tuesday as the Federal Open Market Committee was due to begin a two-day meeting, which investors hope will clarify the trajectory of monetary policy.
The 10-year note 10_YEAR +0.09% yield, which moves inversely to price, rose 3 basis points to 2.211%. The 30-year bond 30_YEAR -0.15% yield rose 1.5 basis points to 3.369%, and the 5-year note 5_YEAR +0.47% yield rose 2 basis points to 1.083%.
The FOMC will meet on Tuesday and Wednesday to decide on its policies, including when and how to begin winding down its bond-purchase program, which has held interest rates down. However, the committee won’t release a statement until Wednesday afternoon. A press conference with Fed Chairman Ben Bernanke follows.
Strategists at Deutsche Bank suggested in a report Tuesday that Bernanke’s news conferences do have an impact across markets, but parts of that movement is front-loaded in some markets. The S&P 500 index SPX +0.35% rises about 1% more than average leading up a new conference, as the market anticipates policy changes coming out of the meeting.
Treasurys, on the other hand, have been largely hands off as the market awaits Fed guidance.
“No one wants to trade ahead of the meeting, especially if they think there could be a change in policy. Why take the chance if you don’t have to?” said Chris Keith, senior vice president and fixed-income manager at Adviser Investments.
The bond market has been on edge over the last six weeks as speculation builds that the Fed may take action to slow its pace of asset purchases. The 10-year Treasury note yield climbed over half a basis point as Bernanke indicated the Fed may take action to wind down its purchases in its next few meetings if data showed continued economic improvement.
Treasurys initially cut some of their losses Tuesday after a slew of mixed economic data, but continued to drift lower after the numbers.
U.S. housing starts climbed 6.8% to 914,000 in May, following a drop last month. Economists had expected construction on new homes to rise by a rate of 953,000. Consumer prices rose in May by a seasonally adjusted 0.1% on the back of higher housing costs, electricity and natural gas. Economists polled by MarketWatch had expected a 0.2% rise in the CPI.
Stocks opened higher Tuesday; the Dow Jones Industrial Average DJIA +0.49% was up 58 points and the S&P was up 4 points in morning trading.
Ben Eisen is a MarketWatch reporter based in New York.
