NEW YORK, July 31 (Reuters) - U.S. Treasury yields ticked lower on Tuesday after the Bank of Japan announced it would continue to pursue its ultra-loose monetary policy, though they mostly rebounded thanks to a modest increase in U.S. inflation.
Sovereign bonds globally dipped with Japanese government bonds on Tuesday after the central bank tweaked its monetary policy but pledged to keep interest rates low, bringing some relief to a market that had braced for bigger changes.
Movement of Treasury yields was muted compared with the five basis point drop in the benchmark 10-year Japanese government bond. The yield on the U.S. 10-year note initially fell more than 3 basis points but was last down less than a basis point in morning trade.
“The direction is right but the magnitude is small. We still have a decent amount of news ahead of us,” said George Goncalves, head of U.S. rates strategy at Nomura Securities International.
The BOJ’s meeting is the first in a series this week, followed by Federal Reserve on Tuesday and Wednesday, and the Bank of England on Thursday.
U.S. consumer spending increased solidly in June as households spent more at restaurants and on accommodations, building a strong base for the economy heading into the third quarter, while inflation rose modestly, in line with the Fed’s 2 percent target.
No change in interest rates is expected to come from the Fed’s meeting on Tuesday and Wednesday. Futures traders are pricing in just a 3 percent chance that the central bank will raise rates in August, according to the CME Group’s FedWatch Tool. But the Fed’s interpretation of the mixed second-quarter GDP growth data released on July 27 will be watched closely.
Market participants will be looking for adjustments to the language in Fed Chair Jerome Powell’s policy statement. Minutes from the central bank’s June meeting said “a number of (participants) noted that it might soon be appropriate to modify the language in the post-meeting statement indicating that ‘the stance of monetary policy remains accommodative.’”
The 10-year U.S. government note last yielded 2.96 percent, down less than a basis point from Monday. The 30-year yield was down 2 basis points, at 3.08 percent. The drop in yields on longer-dated Treasuries drove the yield curve modestly flatter, with the spread between two- and 10-year bonds at 29.1 basis points, down from 30.8 on Monday. (Reporting by Kate Duguid; Editing by Steve Orlofsky)