March 18, 2019 / 7:22 PM / 5 months ago

TREASURIES-Yields tick up in muted trading ahead of Fed meeting

(Recasts headline, adds analyst quote, updates yields)

By Kate Duguid

NEW YORK, March 18 (Reuters) - U.S. Treasury debt yields ticked up on Monday but made no significant moves as traders held off placing large positions ahead of the Federal Reserve’s policy-setting meeting this week at which the U.S. central bank is expected to keep interest rates steady.

The probability that the Fed will announce Wednesday that it will keep rates at the current 225-250 basis-point level was 98.7 percent on Monday, according to CME Group’s FedWatch tool. Weak data published this month, including the government’s employment report for February which drastically missed expectations, has supported the Fed’s pause in rate hikes.

In January, the Fed pivoted from hiking rates quarterly to pledging patience before making more moves. Fed Chair Jerome Powell has also said the central bank could stop shedding bonds this year.

Data showed on Friday that U.S. manufacturing output fell 0.4 percent in February, weakening for a second straight month, while factory activity in New York state was softer than expected this month with an index reading of 3.7.

Although unchanged rates have been priced in by the market, investors will be watching to see if the Federal Open Market Committee’s dot plot, which shows individual committee members’ rate views for the coming three years, aligns with the patient approach expressed by the chair and vice chair. Investors will also be watching for details on whether the central bank will continue to shed bond holdings from its balance sheet.

“It has been a fairly muted session, I think it’s fair to say,” said Brian Daingerfield, macro strategist at NatWest Markets.

“I think the market is really looking ahead to the Fed decision on Wednesday, given the possibility of changes in the dot plot median and the balance sheet, and of course the possibility of any changes in the language surrounding the guidance from Chair Powell’s press conference.”

The benchmark 10-year yield was up 0.9 basis point, last at 2.602 percent, trading within a narrow range. At either end of the curve, the two-year yield was up 1 basis point, while the 30-year yield was down 0.4 basis point.

The modest selloff in Treasuries was in part due to new investment-grade corporate bond deals which hit the market on Monday. Retailer Target Corp priced on Monday a $1 billion 10-year bond offering. Bonds were also launched by French bank BNP Paribas, British pharmaceutical firm GlaxoSmithKline and three regional U.S. utilities.

Reporting by Kate Duguid in New York Editing by James Dalgleish

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