U.S. bond yields higher ahead of Fed meeting results

(Recasts; adds analyst quote; updates yields)

By Kate Duguid

NEW YORK, March 19 (Reuters) - U.S. Treasury yields were modestly higher in afternoon trade on Tuesday, as investors await insight on the Federal Reserve's policy path when the U.S. central bank ends its two-day meeting on Wednesday, amid broad expectations that it will hold rates steady.

The probability the Fed will keep rates at the current 225-250 basis-point level was 98.7 percent on Tuesday, when the U.S. central bank's Federal Open Market Committee (FOMC) started the policy meeting, according to CME Group's FedWatch tool. Weak data published this month, including February jobs data that drastically missed expectations, has supported the Fed's pause in rate hikes.

"We firmly believe that the Fed will remain on hold - and that's pretty much priced in if you look at bond futures markets," said Andrew Dassori, chief investment officer at Wavelength Capital Management.

In January, the Fed pivoted after hiking rates four times in 2018, pledging patience before making further moves. In February, Fed Chair Jerome Powell also said the central bank would stop shrinking its balance sheet later this year.

New orders for U.S.-made goods rose less than expected in January and shipments fell for a fourth straight month, offering more evidence of a slowdown in manufacturing activity - and in the American economy.

Although unchanged rates have been priced in, investors will be watching to see if the Fed's dot plot, the diagram which shows individual committee members' rate views for the coming three years, aligns with the patient approach the Fed has expressed. Investors will also be looking for details on whether the central bank will continue to shed bond holdings from its balance sheet.

"I don't expect any major moves ahead of tomorrow's FOMC. I think a lot of people are looking towards that to see what's in store, how the dots play out," said Justin Lederer, Treasury analyst and trader at Cantor Fitzgerald.

The staid nature of the Treasury market on Tuesday persisted despite some trade developments. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin plan to travel to China next week for negotiations with Chinese Vice Premier Liu He, a Trump administration official said. It will be the first round of talks since President Donald Trump delayed a March 1 deadline to raise tariffs on $200 billion worth of Chinese imports.

The 10-year Treasury yield was last at 2.616 percent, 1.5 basis points higher from its last close. The 2-year Treasury yield, which is a proxy for investor expectations of interest-rate hikes, was up 1.9 basis points, at 2.475 percent. At the other end of the maturity range, the 30-year yield was up 1.5 basis points. at 3.025 percent. (Reporting by Kate Duguid; Editing by Leslie Adler)

First Published: 2019-03-19 16:14:01
Updated 2019-03-19 22:25:05

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