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Treasury Bond Yields Fall Ahead of Fed Comment

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07/29/2020 | 11:35am EDT

By Matt Wirz

Treasury bond yields are hovering near the lower end of their recent trading range ahead of the Federal Reserve's scheduled announcement on interest rates this afternoon.

With no change in rates expected, analysts are focusing on the language Fed Chairman Jerome Powell will use in comments after the announcement, especially concerning inflation and how the central bank will transition out of crisis mode.

"Most people think that this meeting is a nonevent, but I disagree," said Priya Misra, head of rates strategy at TD Securities. "I think the market is setting up for big action soon."

If Mr. Powell strikes a dovish tone, that will add momentum to the gradual fall of yields in recent months, while a less accommodative shift could cause yields to snap higher, Ms. Misra said.

Ten-year Treasury yields fell as low as 0.577% this morning, down from 0.581% on Tuesday and 0.682% at the start of July, according to data from Tradeweb. That puts the 10-year note close to the recent low of 0.571% touched in April but well above the 0.498% nadir hit in March when the coronavirus pandemic began in the U.S.

With stock and bond markets broadly recovered from early year losses, investors are homing in on how Fed policy might change. The FOMC is expected to discuss "how to pivot from 'stabilization' to 'accommodation' policies," said Bank of America Credit Strategist Hans Mikkelsen in a report Wednesday.

One measure Mr. Powell may discuss is bond purchases aimed at lowering long-term interest rates, analysts said.

Corporate bond markets are slightly higher ahead of the Fed comment, with spread of investment-grade bond yields over Treasuries ratcheting tighter. The price of a $2.5 billion bond AT&T Inc. issued this week climbed to around 101.50 today from 100.15 on Monday, according to data from MarketAxess.

In emerging markets, all eyes are on negotiations between Argentina and its bondholders over how to restructure the South American nation's bonds. Three bondholder groups with members like AllianceBernstein, Ashmore Investment Advisors Inc. and BlackRock Inc. claim to control more than half the country's bonds and sent Finance Minister Martín Guzmán a letter Monday promoting the restructuring proposal they disclosed earlier this month. Argentina's 5.625% bond due in 2022 traded around 45 cents on the dollar today, up from around 42 in mid-July.

Write to Matt Wirz at matthieu.wirz@wsj.com

 

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