Yields fall before Fed meeting statement

NEW YORK: US Treasury yields fell on Wednesday before the Federal Reserve is expected to signal its intention to keep interest rates near zero for the next few years as it attempts to stimulate the US economy.

The US central bank will publish its economic projections and investors will also be watching to see if it indicates any intention to implement yield curve control, which analysts say is most likely for short-dated notes.

The US economy entered recession in February as a result of the coronavirus pandemic, the private economics research group that acts as the arbiter for determining US business cycles said on Monday.

The yield curve has steepened as investors bet that short-term rates will be held down by the Fed's low rate policy, while long-dated debt will be hurt by improving economic expectations and increasing Treasury supply.

"Realistically the front-end shouldn't go anywhere," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

"I'd be hard pressed to see the Fed raise rates in the next few years."

Two-year Treasury note yields, which are the most sensitive to Fed policy, fell 2 basis points to 0.191pc.

Benchmark 10-year note yields dipped 3 basis points to 0.797pc.

The yield curve between two-year and 10-year notes flattened to 61 basis points. It reached 72 basis points on Friday, the steepest since March, after data showed the US economy unexpectedly added jobs in May.

The curve between five-year notes and 30-year bonds flattened to 119 basis points, after reaching 129 basis points on Friday, the steepest since December 2016.