Bond Report: Treasury yields hold steady as investors look forward to Fed meeting

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Treasury yields were little changed on Friday as a lack of fresh developments on Brexit and U.S-China trade drew investors’ attention to next week’s Federal Reserve meeting, where another quarter point rate cut is expected.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -0.74% was up 0.4 basis point to 1.770%, while the 30-year bond rate TMUBMUSD30Y, -0.69% rose a single basis point to 2.269%. The 2-year note yield TMUBMUSD02Y, +0.52% edged higher by 0.6 basis point to 1.588%.

What’s driving Treasurys?

Investors say they are now casting their eyes forward to next week’s meeting of the Federal Open Market Committee, the U.S. central bank’s rate-setting group. Traders expect the Federal Reserve to deliver its third quarter point cut of the year as part of its mid-cycle adjustment. It is unclear, however, if the Fed will ease policy further or wait for more clarity on a U.S.-China trade deal.

Trade representatives from Beijing and Washington will share a call on Friday to agree on a text for what President Donald Trump called a phase one trade agreement, so that it could be signed by the time that the Asia-Pacific Economic Cooperation meetings take place in Chile on Nov. 16.-17. Reuters reported trade officials will discuss plans for China to buy more U.S. agricultural products in return for the cancellation of some U.S. tariffs on Chinese imports.

Even as the bond-market struggles for direction, stocks are flirting with all-time highs again. The S&P 500 SPX, +0.19% is off 0.5% its record close as of Thursday.

In economic data, the German Ifo survey showed executives assessment of their business’ health came in at a reading of 97.8 points in October, down from 98.6 points in the previous month. But the more widely-watched business climate gauge held steady at 94.6 points versus last month.

The University of Michigan’s consumer sentiment survey for October will be due at 10 a.m.

See: Meet the lonely economist who thinks the Fed might just leave interest rates unchanged

What did market participants’ say?

“With the market priced about 90% for a 25 basis point cut, the Fed is very unlikely to disappoint. More important will be any indication that the committee is done cutting for now,” wrote Tom Porcelli, an economist at RBC Capital Markets.

“With the economy broadly on firm footing (the household sector continues to chug along), the argument to ease beyond the October meeting has weakened. The Fed will probably have to hint at this coming pause,” said Porcelli.