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Bond Report: Treasury yields turn mixed as investors look ahead to November Fed meeting

U.S. Treasury yields were mixed on Tuesday as investors prepared to sift through a number of economic data releases ahead of next week’s Federal Reserve meeting.

Yields on 2 to 7 year debt out were higher, while the 10-year yield swung between advances and declines and the 30-year was down at around 2.07%.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.638%

yields 1.635%, versus 1.634% at 3 p.m. Eastern on Monday.

The 2-year Treasury note yield
TMUBMUSD02Y,
0.458%

edged up to 0.446%, compared with 0.435% late Monday.

The 30-year Treasury bond yield
TMUBMUSD30Y,
2.074%

fell to 2.07%, down from 2.085% on Monday afternoon.

What’s driving the market?

The yield curve — a line plotting yields across all Treasury maturities — continued to flatten, with long-dated yields falling or not gaining as much as short-dated yields.

The Fed is seen as likely to announce its plan next week for scaling back, or tapering, its $120 billion in monthly bond purchases, and investors are already looking past the multi-month long process. They’re focused instead on when the central bank will begin raising interest rates, and have moved forward their expectations for the first hike as a result of high inflation readings.

However, there are worries that the Fed could move more aggressively than anticipated to tighten monetary policy, at a time when economic growth could be waning. By the same token, fears of slowing growth are also contributing to the view of many that policy makers won’t be able to lift rates very far once they start. On Tuesday, Dow industrials
DJIA,
+0.26%

and the S&P 500 Index
SPX,
+0.61%

hit new intraday highs in early trading.

Investors will be closely tracking economic data for signs of the underlying state of the economy, which has remained resilient. While supply bottlenecks are seen contributing to inflation worries, the backlogs are the result of consumer demand for goods that continues to run strong with help from government stimulus payments earlier this year.

In U.S. data released Tuesday, the S&P Case-Shiller’s 20-city home price index rose 19.7% in August from a year ago, missing consensus estimates for a 20% increase. Meanwhile, the Conference Board’s October reading on consumer confidence rose to 113.8 from 109.3 in the prior month.

Top-tier data will be in view Wednesday, with the release of September durable-goods data. Figures out Thursday include weekly jobless claims and an estimate of third-quarter gross domestic product. Friday brings personal income and spending data, as well as the Fed’s favorite inflation measure — the core personal consumption expenditures price index.

What are analysts saying?

“The markets were pretty stable yesterday and it might be the case now that, with the Fed in its premeeting blackout period, activity settles down as investors await the Fed next week,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note. “There is still plenty of data to come this week but no realistic chance that any of it is going to sway the Fed at this late stage.”

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