Treasury yields are flat on Tuesday morning as investors anticipate what the Fed will say in its two-day policy meeting, which kicks off later in the day.
The yield on the benchmark 10-year Treasury note dipped less than a basis point to 1.499% at 7:10 a.m. ET. The yield on the 30-year Treasury bond ticked less than a basis point higher to 2.192%. Yields move inversely to prices. One basis point equals 0.01%
The Federal Open Market Committee’s two-day policy meeting is set to conclude on Wednesday afternoon, followed by a press conference with Fed Chairman Jerome Powell.
The Fed is not expected to take any policy action in its meeting, though investors will be listening to Powell’s comments closely for any signals of the central bank’s eventual asset purchase tapering plans.
Tiffany Wilding, U.S. economist at PIMCO, said on Monday that the investment management firm expected the Fed to upgrade its outlook for growth and “materially revise up the inflation forecast” in its meeting.
“As a result of the better growth outlook, and despite the transitory nature of the inflation spike, we think the majority of Fed officials will also pull forward their projections for the first rate hike to 2023,” Wilding said, compared to a forecasted rate hike in March 2024.
Wilding added that PIMCO’s base case remained that the Fed would announce a tapering of bond purchases at its December meeting. However, she said that Powell could float the idea that the Fed might consider the possibility of tapering in September, if “inflation is more persistent than expected.”
May’s Producer Price Index is expected to be released at 8:30 a.m. ET. PPI is another inflation gauge, measuring the prices paid to producers rather than on a consumer level.
The overall index is expected to rise 0.5% in May, according to Dow Jones estimates. The core PPI — which excludes volatile items like foods, energy and trade services — is also estimated to increase 0.5%.
Retail sales data for May is also due to be released at 8:30 a.m. ET, along with the NY Empire State manufacturing index for June. Industrial production data for May is then expected to come out at 9:15 a.m. ET.
The National Association of Home Builders’ housing market index for June is due out at 10 a.m. ET.
Auctions are due to be held on Tuesday for $34 billion of 52-week bills, $40 billion of 42-week bills and $24 billion of 20-year bonds.