MW: U.S. 10-year yields rise to 2% before Fed decision
Treasury auction of 5-year notes coming up before noon
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices slipped modestly on Wednesday, pushing 10-year yields to 2%, ahead of the Federal Reserve’s policy statement, forecasts and press conference by Chairman Ben Bernanke.
Also coming up, before the Fed events, is the government’s sale of 5-year notes, possibly at the lowest yield level on record.
Yields on 10-year notes 10_YEAR +0.96% , which move inversely to prices, rose 1 basis point to 1.99%, flirting with 2%. A basis point is one one-hundredth of a percentage point.
They last closed above 2% on April 17.
Earlier this week, yields on several benchmark securities touched their lowest levels in at least seven weeks.
Yields on the current 5-year notes 5_YEAR +2.46% added 2 basis points to 0.87%.
Two-year yields 2_YEAR +3.96% rose 1 basis point to 0.29%.
Thirty-year notes 30_YEAR +0.54% increased 2 basis points to 3.15%.
At 12:30 p.m. Eastern time, the Federal Open Market Committee will release its statement on the economic and policy outlook. Officials are expected to continue to forecast low rates until 2014 and the end of the U.S. central bank’s current bond-purchase program, known as Operation Twist, in June.
The FOMC will then release its quarterly growth, unemployment and interest-rate forecast at 2 p.m., followed by a press conference with Bernanke at 2:15 p.m. See recent story on Fed meeting.
Most analysts don’t expect any major announcement regarding monetary policies, but are aware that other markets may be disappointed by that and react. Also, the Fed may have to revise down its unemployment rate forecast, as the recent drop has pushed it to the low end of the Fed’s year-end forecast already, noted analysts at Barclays Capital.
“The interest rate projections could surprise on the hawkish side, given the notable decline in the unemployment rate,” Ajay Rajadhyaksha and Dean Maki wrote in a report. That could be more beneficial for very short-term debt than longer-dated securities, they said.
Bonds stayed under slight pressure on Wednesday after a report showed durable goods fell 4.2% in March, more than economists expected. See story on durable goods.
Five-year auction
At 11:30 a.m. Eastern time, the Treasury Department will sell $35 billion in 5-year notes — moving the auction up from its normal time so as not to conflict with the Fed’s schedule.
“Despite the recent cheapening, yields across the curve seem to be heading into the FOMC meeting set up for disappointment,” said George Goncalves, head of U.S. rates strategy at Nomura Securities. “In such an environment, the 5-year auction is unlikely to see strong demand as Fed disappointment could weigh heavy on 5-year notes an hour after the auction.”
In U.S. morning trading, the to-be-issued securities were trading at 0.88%, he said. If the auction closes at that level, it would match December’s auction as the lowest yield on record.
Deborah Levine is a MarketWatch reporter, based in New York.
