By Ellie Ismailidou, MarketWatch
Treasury yields edged higher on Tuesday as investors digested
mixed economic reports ahead of the Federal Reserve's meeting on
U.S. monetary policy, scheduled for Tuesday and Wednesday.
Wednesday's Federal Open Market Committee statement, along with
a preliminary reading on first-quarter gross domestic product
growth results, will likely clarify whether the Fed is "reasonably
confident" in the inflation outlook, as indicated in March's policy
statement.
The level of Fed confidence is in turn expected to influence the
liftoff date and the pace of a potential future interest rate hike,
analysts said.
Investors are looking at whether Fed officials will acknowledge
the recent weak data and if so, whether they will blame the soft
growth mainly on transitory factors.
But even if the Fed produces a more dovish statement than the
one in March, the market will likely be far more dovish still, a
Bank of America report showed. The market currently is not priced
for a rate hike by the September meeting, let alone by June,
according to the report.
"This presents a dilemma for the Fed: accommodate market
expectations of an even later liftoff, or update their
communications to nudge the market in the Fed's direction. Despite
not wishing to repeat the taper tantrum, we expect the April
statement to reflect more of the latter," Bank of Americ Merril
Lynch's rates analysts Michael Hanson and Brian Smedley said in a
note.
On the economic data front, declining consumer confidence
(http://www.marketwatch.com/story/consumers-less-confident-in-april-after-slowdown-in-hiring-2015-04-28)
along with a rising home-prices index
(http://www.marketwatch.com/story/case-shiller-20-city-home-price-index-up-05-in-february-2015-04-28-99105)
balanced each other out on Tuesday. The net effect was lots of
choppy trading in light volumes but not much of a clear
direction.
On balance, the yield on the 10-year Treasury note rose 2.7
basis points to 1.951%, according to data from Tradeweb. The yield
on the two-year note increased 1.4 basis points to 0.559% and the
30-year bond rose 3.6 basis point to 2.648%. Treasury prices move
in the opposite direction of yields.
New supply coming into the market later in the day, namely $35
billion in five-year Treasury notes and $25 billion in one-year
bills, could also affect Treasury yields.
"Today's focus will be on institutional interest in the
five-year auction, as it has been an area of the curve where the
majority of investors have been under-invested," Tom di Galoma,
head of rates and credit trading at ED & F Man Capital Markets,
said in a note.
At the same time, the U.S. Treasury market continues to receive
buying pressures from international investors, due to the yield
differential between the U.S. and other bond markets.
"We got some bond-friendly news overnight in the form of
weaker-than-expected U.K. GDP and disappointing Japanese retail
trade," David Ader, head of government bond strategy at CRT Capital
Group, said in a note.
The news caused a "knee-jerk reaction to buy treasuries," di
Galoma said.
Meanwhile, the 10-year Greek bond yield continued to recover
from last week's selloff, dropping another 72.5 basis points to
11.098% on Tuesday, after the market welcomed Greek changes
(http://www.marketwatch.com/story/european-stocks-fall-with-deutsche-bank-greece-in-focus-2015-04-27)
to a key team negotiating with its international creditors.
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