NEW YORK, March 19 (Reuters) – U.S. Treasury yields followed German government bonds higher on Tuesday morning, as the U.S. Federal Reserve’s interest rate policy-setting meeting began.
The mood among German investors improved more than expected in March, a survey by the ZEW research institute showed on Tuesday, as a potential delay to Britain’s departure from the European Union buoyed sentiment. British lawmakers voted overwhelmingly last Thursday to seek a delay in Britain’s exit from the European Union.
The benchmark German 10-year Bund yield was up 3.4 basis points at 0.113 percent, driving the 10-year Treasury note yield up along with it by 2.6 basis points to 2.627 percent.
“We got a little stronger data out of Europe overnight,” said Justin Lederer, Treasury analyst and trader at Cantor Fitzgerald. “That was the catalyst that started the selloff in Treasuries.”
“There have also been a few sizeable block trades over the last hour or so that have escalated the selloff. But it looks like at least for right now, we have hit lows,” he said.
At its two-day meeting beginning Tuesday, the Federal Open Market Committee is widely expected to hold rates steady, with a 98.7 percent probability it will keep rates at the 225-250 basis-point level, according to CME Group’s FedWatch tool. Weak data published this month, including the government’s employment report for February, which drastically missed expectations, has supported the Fed’s pause in rate hikes.
In January, the Fed pivoted from hiking rates quarterly to pledging patience before making more moves. Fed Chair Jerome Powell has also said the central bank could stop shedding bonds this year.
Although unchanged rates have been priced in by the market, investors will be watching to see if the FOMC’s dot plot, which shows individual committee members’ rate views for the coming three years, aligns with the patient approach expressed by the chair and vice chair. Investors will also be looking for details on whether the central bank will continue to shed bond holdings from its balance sheet.
“I don’t expect any major moves ahead of tomorrow’s FOMC. I think a lot of people are looking towards that to see what’s in store, how the dots play out,” said Lederer.
The two-year Treasury note yield, which is a proxy for investor expectations of interest-rate hikes, was up 0.6 basis point at 2.462 percent. At the other end of the maturity range, the 30-year yield was up 3.6 basis points at 3.046 percent. (Reporting by Kate Duguid; Editing by Bernadette Baum)
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