The 10-year U.S. Treasury yield continued its slide on Wednesday, dropping to the lowest since February despite concerns about rising inflation and a gradual removal of Federal Reserve stimulus.
The drop in yields continued to mystify investors who mostly expected yields to climb higher this year as the economy recovered from the global pandemic. The decline came ahead of the release of the Federal Reserve’s minutes from its latest meeting.
The yield on the benchmark 10-year Treasury note fell 6 basis points to 1.30% at 8:40 a.m. ET, its lowest since late February. The yield on the 30-year Treasury bond dipped 6 basis points to 1.942%. Yields move inversely to prices and 1 basis point equals 0.01%. The shorter end of the curve was largely unchanged, causing a flattening.
The 10-year yield rose as high as 1.78% in March as investor bet on an economic comeback and faster inflation. Since then, yields have rolled over and prices increased with explanations for the move varying from foreign buying interest to fears of peak economic growth to increased concerns about Covid-19 variants.
Some traders also believe the move to take away stimulus by the Fed could raise short-term rates, while cause longer-term rates to fall on fears of an economic slowdown. The Fed is expected to publish the minutes from its June 15-16 meeting, at 2 p.m. ET on Wednesday. Investors will be poring over the minutes for any signs of the central bank’s plans for monetary policy.
The Fed’s minutes are expected to be dovish with the central bank looking for progress in the labor market and not worried that recent inflation will become a persistent trend. Slowing down the bond buying would be the Fed’s first major retreat from the easy policies it put in place when the economy shut down last year.
The end of the Fed’s $120 billion a month in Treasury and mortgage purchases would also signal that the central bank’s next move could be to raise interest rates.
Andrew Sheets, chief cross-asset strategist at Morgan Stanley, told CNBC’s “Squawk Box Europe” on Wednesday that the investment bank expected the Fed to announce a tapering of its asset purchases in September.
Sheets said Morgan Stanley expected the Fed to tighten its monetary policy “well ahead” of the European Central Bank and the Bank of Japan.
Prior to this, the May Job Openings and Labor Turnover Survey is expected to be released at 10 a.m. ET.
An auction is scheduled on Wednesday for $35 billion of 119-day bills.
— CNBC’s Tanaya Macheel contributed to this market report.
