The benchmark U.S. 10-year Treasury yield retreated in volatile action Wednesday after the Federal Reserve said that it may soon curtail its asset purchase program that has been in place for more than a year.
The yield on the benchmark 10-year Treasury note dropped 1.7 basis points to 1.307% and the yield on the 30-year Treasury bond fell 3.5 basis points to 1.822%. Short-term rates moved higher, on the other hand, moved higher. Yields move inverse to prices, and 1 basis point is equal to 0.01 percentage points.
The Fed said after its September meeting on Wednesday that the economic progress for the U.S. since the depths of the pandemic meant that the central bank may be able to withdraw some of its market support in the coming months, with the taper of its bond-buying program possibly concluding by the middle of 2022.
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the FOMC’s post-meeting statement said.
The 10- and 30-year yields were down more than 2 basis points before Powell’s press conference began at 2:30 p.m. Yields bounced off their lows after Fed Chair Powell said the central bank’s further progress test has been met on its inflation mandate and “many” members believe that test has been met on the employment mandate as well.
For his part, Powell said, “My own view is the test for substantial further progress on employment is all but met.” The central banker added that he believed the pandemic-era asset purchases could stop completely by the middle of 2022.
The 10-year yield briefly turned positive for the session as Powell spoke before pulling back once again.
Powell reiterated on Wednesday that slowing down the Fed’s asset purchases should not be seen as a signal about when rate hikes may come. However, a rising number of FOMC members — half of them — now see the first hike coming in 2022, and the majority of members projected several hikes through 2024.
“The curve is flattening. … If 2023 has three hikes and 2024 has another three, I think that is down the road tighter policy which is a little more than we had the last time. The 10-year spiked two basis points and came back down. The future path of rates is a little tighter,” said John Briggs, head of global macro strategy at NatWest Markets
The central bank also downgraded its GDP growth estimate for 2021 to 5.9% from 7% previously.
On the economic front, the National Association of Realtors said Wednesday that existing-home sales dipped 2% month over month in August, but the median home price was up almost 15% compared with the same period last year.
Meanwhile, money managers are also digesting news that the House of Representatives has passed legislation that avoid a government shutdown and suspend the debt ceiling until December 2022. The bill now moves to the Senate, however, where Democrats have a much slimmer majority.
—CNBC’s Hannah Miao contributed to this report.
Correction: An equal number of FOMC members see a rate hike in 2022 as those who don’t, though the central tendency is listed as an increase next year in the Fed’s summary of economic projections. An earlier version mischaracterized the committee members’ individual expectations.
