in a statement pushed back against investor expectations that it was ready to flag the end of its tightening cycle, a view the market has embraced because rate hikes are slowing the U.S. economy.
Fed policymakers at the end of a two-day meeting said "ongoing increases in the target range will be appropriate" for policy to be "sufficiently restrictive to return inflation to 2% over time."
The market initially took the statement as being hawkish, sending yields at first higher, as there were expectations "ongoing increases" would be changed or down-scaled, said Blake Gwinn, head of rates strategy at RBC Capital Markets.
"There was disappointment when that was not removed and it was just repeated," he said. "People had expected there would be a bit of dovish direction" and that "the market was going to glom onto any dovish tidbit."
Fed Chairman Jerome Powell told a news conference that "there is a path
to getting inflation to 2% without a significant economic decline."
The market embraced the comment, sending the 10-year yield as low as 3.387% at one point. Stocks markets also jumped on Powell's comments. Economic data in the morning suggested a cooling economy while the labor market remains strong, a combination the market believes will allow the Fed to cut rates later this year.
U.S. private payrolls increased far less than expected in January, the ADP National Employment report showed, while U.S. manufacturing contracted further last month, the Institute for Supply Management (ISM) said in a separate report. Fed fund futures were choppy, as the market priced in a peak overnight rate of 4.893% in June that then declines to 4.395% in December on expectations the Fed cuts rates in the latter half of the year as the economy slows considerably.
Yields on the two-year Treasury note, which often reflect interest rate expectations,
fell 10.9 basis points to
4.098 % as yields on longer-dated securities fell.
The yield on the benchmark 10-year note fell 12.3 basis points to
3.406
%.
U.S. private payrolls increased far less than expected in January, the ADP National Employment report showed, while U.S. manufacturing contracted further last month, the Institute for Supply Management (ISM) said in a separate report. Other data showed a strong labor market. U.S. job openings unexpectedly rose in December, showing demand for labor remains strong, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS report. ISM data suggested factories did not appear to be laying off workers in large numbers. The yield on the 30-year Treasury bond was down 10.2 basis points to 3.559%.
The yield curve measuring the gap between yields on two- and 10-year notes , seen as a recession harbinger when the shorter-dated yields are higher than longer-dated maturities, remained inverted at -69.4 basis points.
Feb. 1 Wednesday 3:41 p.m. New York / 2041 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.54 4.6565 -0.036
Six-month bills 4.6375 4.8148 -0.018
Two-year note 100-14/256 4.096 -0.111
Three-year note 100-76/256 3.7671 -0.147
Five-year note 100-6/256 3.4948 -0.141
Seven-year note 100-76/256 3.4518 -0.140
10-year note 105-240/256 3.4057 -0.123
20-year bond 104-128/256 3.6775 -0.109
30-year bond 108-12/256 3.5593 -0.102
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap spread 28.25 -0.25
U.S. 3-year dollar swap spread 15.75 1.50
U.S. 5-year dollar swap spread 6.25 0.75
U.S. 10-year dollar swap spread -1.25 1.25
U.S. 30-year dollar swap spread -37.50 1.75
(Reporting by Herbert Lash, additional reporting by David Randall and Davide
Barbuscia; editing by Jonathan Oatis and Nick Zieminski)
