Treasury yields slip ahead of Fed decision

Published: Feb. 1, 2023 at 7:23 a.m. ET

By Barbara Kollmeyer

Treasury yields were slightly lower on Wednesday as investors got ready for the Federal Open Market Committee to announce a decision on interest rates, along with guidance coming on future policy moves. A fresh batch of U.S. economic data is also ahead.

What are yields doing?

• The yield on the policy-sensitive 2-year Treasury note TMUBMUSD02Y, 4.195% slipped 1 basis point to 4.199%, from 4.207% late Tuesday. A 19.2 basis point drop in January was the biggest monthly fall since March 2020
• The 10-year Treasury note TMUBMUSD10Y, 3.487% fell 2 basis points to 3.606%, from 3.527 late Tuesday. The yield fell 29.9 basis points in January.
• The yield on the 30-year Treasury note TMUBMUSD30Y, 3.610% slipped 3 basis points to 3.608% from 3.659% late Tuesday, with a fall in the yield of 27.5 basis points last month.

Market drivers

Investors expect the Federal Reserve, in a decision due at 2 p.m. Eastern, will hike its policy rate by 25 basis points, and will keenly focus on the central bank’s future plans and comments from Chairman Jerome Powell at the 2:30 p.m. news conference. Some see him pushing back against expectations that the Fed is reaching peak rates and will be ready to start cutting by the end of the year.

Read: Bond investing 101: What to know as the Fed sticks to its inflation fight

And: 4 ways Powell could tell markets the Fed isn’t ready to pivot

Investors are also waiting on a fresh batch of U.S. data. The ADP private-sector employment report for January is due at 8:15 a.m., followed by the Institute for Supply Management’s January manufacturing index, job openings and construction spending, all at 10 a.m.

“As we see it, the percentage of bets placed in the bond market for a quarter-point hike this week has grown. In fact, any disappointments will cause the bond and equities markets to react negatively,” said Peter Cardillo, chief market economist at Spartan Capital, in a note to clients.

“However, while the expectations of fifty base point hike (which, by the way, we still see as probable) have sharply diminished in the market, we do see a dovish
communique indicating that the end of the Fed tightening cycle is at hand,” said Cardillo.