Treasury yields edge higher ahead of Fed meeting, PPI reading

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Treasury yields edged higher Tuesday ahead of the kickoff of a pivotal, two-day meeting of Federal Reserve policy makers and the latest read on U.S. wholesale inflation.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.437%
    rose to 1.429%, edging up from 1.423% at 3 p.m. Eastern on Monday.

  • The 2-year Treasury note yield
    TMUBMUSD02Y,
    0.652%
    was at 0.645%, compared with 0.642% Monday afternoon.

  • The yield on the 30-year Treasury bond
    TMUBMUSD30Y,
    1.821%
    was 1.818%, up from 1.811% late Monday.

What’s driving the market?

The focus for investors remains on the Federal Reserve and a host of other major central banks, including the European Central Bank, Bank of England and Bank of Japan, which are holding policy meetings this week.

Fed policy makers are expected on Wednesday to announce they will accelerate the wind-down of monthly asset purchases in response to inflation that continues to run hot and has proven more persistent than had been expected. The move is expected to put the Fed on track to end asset purchases by next spring, clearing the way for potential interest rate increases earlier than had been previously anticipated.

See: 5 things to watch for when the Federal Reserve announces its policy decision Wednesday

In other U.S. economic news, the National Federation of Independent Business on Wednesday said its small-business optimism index rose 0.2 point in November to 98.4.

The November Producers Price Index is due at 8:30 a.m. Eastern. Economists, on average, look for a rise of 0.5%.

Investors also remain attuned to the spread of the omicron variant of the coronavirus that causes COVID-19. Pfizer Inc.
PFE,
+4.59%
said trials of its COVID antiviral treatment showed it held off severe disease, while lab results showed it was effective against the omicron variant.

What are analysts saying?

“Apart from an accelerated taper, [Fed Chairman Jerome Powell’s] message on policy tightening going forward will be important,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a note. “In the past, Mr. Powell has said that tapering does not send a signal about tightening. But a relatively quick change in thinking on tapering — the initial taper was announced following the Nov. 2-3 FOMC meeting, and Chair Powell signaled an acceleration in the pace at the end of the month — will also have implications about how quickly policy will be normalized going forward.”

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