The 10-year Treasury yield ended near unchanged Wednesday, erasing a brief pop higher that came after the Federal Reserve made no adjustments to its bond-buying plan that would see it focus purchases on longer-dated paper.
What are yields doing?
The yield on the benchmark 10-year Treasury note
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What’s driving the market?
The yield curve, as measured by the spread between 10-year and 2-year rates, initially steepened after the Fed statement, which affirmed the central bank would continue to buy at least $80 billion a month of Treasury bonds and $40 billion of agency mortgage-backed securities, adding that those purchases would continue “until substantial forward progress has been made toward the FOMC’s maximum employment and price stability goals.”
Fed Chairman Jerome Powell offered further details on the central bank’s initiatives during his subsequent news conference, saying that there are signs of improvement in the economy but noting that “the path ahead remains highly uncertain.”
The Fed announced no changes to the average maturity of its bond purchases, which some economists had expected. With the Fed not moving to buy more in the way of longer-dated Treasurys, the yield curve has room to continue to steepen, analysts said.
Yields slipped earlier in the session after data showed U.S. retail sales fell 1.1% in November, while October sales were revised lower, after a resurgence in coronavirus cases restricted consumer activity in recent weeks. Economists surveyed by MarketWatch had expected a 0.4% fall in sales.
Meanwhile, investors remain focused on talks toward a long-elusive deal on an economic relief package by lawmakers. Congressional leaders met face to face late Tuesday and news reports said negotiators were on the verge of a deal.
What are analysts saying?
” While some will characterize the Fed’s decision to not increase the weighted-average maturity of its portfolio, or increase the pace of asset purchases as ‘hawkish relative to expectations, we would suggest that no Fed policy has ever been more accommodative than this one has been and continues to be,” said Rick Rieder, BlackRock’s chief investment officer of global fixed income, in a note.
“ In my view, the Fed did not disappoint as I believe the
market was way ahead on their estimate that the Fed would
increase WAM (weighted average maturity) of bond purchases,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, in a research note.
“The Fed will wait to extend the WAM until its really needed. With rates relatively low at this time it is certainly not needed,” he said.
