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U.S. Treasury yields ticked lower on Wednesday as bond traders looked forward to a speech by Federal Reserve Chairman Jerome Powell.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 0.666% fell 2.7 basis points to 0.665%, while the 2-year note rate TMUBMUSD02Y, 0.164% inched a basis point lower to 0.163%. The 30-year bond yield TMUBMUSD30Y, 1.356% slid 2.9 basis points to 1.353%.
What’s driving Treasurys?
Fed Chairman Powell will talk about the U.S. economic outlook in the face of the COVID-19 pandemic at 9 a.m. ET, and is expected to reinforce the cautious tone issued by other senior Fed officials. He will talk to the Peterson Institute for International Economics via webcast.
Analysts also say Powell is likely to use his remarks as an opportunity to push back against traders of fed fund futures betting on the central bank’s benchmark interest rate turning negative next year. Cleveland Fed President Loretta Mester, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Robert Kaplan all made comments on Tuesday suggesting the Fed was opposed to using negative interest rates to boost growth.
See: Some traders bet the Fed will push interest rates negative next year
Read: Here’s a $4 trillion reason why the U.S. is unlikely to have negative interest rates
In U.S. economic data, April producer prices are due at 8:30 a.m. Analysts surveyed by MarketWatch forecast, on average, prices to fall by 0.5%. Last month, consumer prices also saw their biggest monthly drop since 2008.
Also Wednesday, traders will take down the last of three debt auctions this week. The Treasury will sell $22 billion of 30-year bonds in the afternoon, making it the largest auction for the maturity on record.
What did market participants’ say?
“The members of the FOMC appear keen to emphasize (though perhaps in not a particularly convincing fashion) that they do not intend to turn to negative policy rates anytime soon. There is an expectation in the market that Chair Powell will also put across this message when he speaks later today,” said Rabobank analysts, in a note.
