Yields drift lower as latest views from Fed awaited

CHICAGO: US Treasury yields eased slightly on Wednesday as the market looked to the conclusion of the Federal Reserve's two-day meeting for policymakers' latest economic projections and clues on when the central bank may shift from its current monetary policy.

The benchmark 10-year yield was last down 1 basis point at 1.4888%.

With inflation rising faster than expected and the economy bouncing back quickly, all eyes will be on the Fed later on Wednesday for signs that the policies it put into place last year to combat the economic fallout from the pandemic, including a massive bond-buying program, may be altered.

Anders Persson, chief investment officer of global fixed income at Nuveen, said the Fed is likely to remain on its current course, leaving the range-bound Treasury market without a clear direction.

"We think (Fed Chair Jerome) Powell will continue to emphasize the lack of sufficient progress on the labor markets and we expect him to reiterate expectations that the current inflation spike will be transitory. I think we're going to have more of the same here again," he said.

Persson also noted economic data has been mixed and subject to revisions.

"Truly, to getting a read on where the economy is heading and where inflation is heading, we don't think we're going to have those data points until the fall," he said.

The Fed is not expected to announce plans to taper its monthly $120 billion bond purchases until its August Jackson Hole economic symposium, although it could acknowledge the start of policy discussions.

Policymakers will update their economic projections and the market will focus on whether they change their inflation projections and timing for a rate hike.

The market will also monitor whether the Fed raises the interest its pays on excess reserves (IOER) and on reverse repurchase agreements (repo) to ease pressure on short-term rates.

The two-year Treasury yield was last less than a basis point lower at 0.1631%.

A closely watched part of the yield curve that measures the gap between yields on two- and 10-year Treasury notes was last unchanged at 132.23 basis points.