December 18, 2018 / 2:45 PM / 3 months ago

TREASURIES-Yields fall before Wednesday's Fed rate decision

    * Fed statement watched on Wednesday for rate hike outlook
    * Futures traders prices in less than on hike in 2019

    By Karen Brettell
    NEW YORK, Dec 18 (Reuters) - U.S. Treasury prices gained on
Tuesday before the Federal Reserve’s highly anticipated interest
rate decision from its two-day meeting is announced on
Wednesday.
    The U.S. central bank is expected to hike interest rates for
the fourth time as U.S. growth continues to look solid.
    Investors are concerned, however, about slowing
international growth, volatile stock markets and the possibility
of a slowing U.S. economy, and will focus on any indications
from the Fed that it may be close to pausing its tightening
cycle because of these issues.
    “The market’s thinking more and more the Fed may be just
about done, it’s not quite there, but it’s not got a lot yet to
go,” said Michael Schumacher, head of rate strategy at Wells
Fargo in New York.
    Comments from Fed Chairman Jerome Powell in late November
that the key interest rate was “just below” neutral, a level
that neither brakes nor boosts the economy, increased
speculation that the Fed may end rate hikes sooner than
previously expected.             
    They came after similarly dovish comments from Fed Vice
Chair Richard Clarida.             
    Investors on Wednesday will watch for any modification in
the Fed’s language that shows that it may take a
meeting-by-meeting approach to raising rates, as opposed to
indicating that it has a predetermined number of rate hikes that
are still likely, said Schumacher.
    “Is it meeting-to-meeting or not? I think that’s what people
are really keen to look at,” he said.
    The Fed has indicated that three additional rate hikes are
likely next year, based on the median expectations in its rate
projections known as the “dot plot.” If this falls to two rate
hikes or less, it will signal to markets that the Fed is closer
to pausing its rate hikes.
    Interest rate futures traders are pricing in less than one
full rate hike during 2019, which is down from two full rate
hikes at the end of October, according to the CME Group’s
FedWatch Tool.
    Benchmark 10-year notes             gained 3/32 in price to
yield 2.848 percent, after earlier dropping to 2.821 percent,
the lowest since Aug. 27. The yields have fallen from a
seven-year high of 3.261 percent on Oct. 9. 

 (Reporting by Karen Brettell; editing by Jonathan Oatis)
  
 
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