U.S. Treasury yields ticked lower on Wednesday as traders await the official scorecard of economic growth, which will show how the U.S. has fared against the worsening global backdrop.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -0.81% was down 1.1 basis points to 1.824%, while the 2-year note rate TMUBMUSD02Y, -0.47% was unchanged at 1.642%. The 30-year bond yield TMUBMUSD30Y, -0.80% fell 1.5 basis points to 2.315%.
What’s driving Treasurys?
U.S. third-quarter gross domestic product is expected to grow at an annualized pace of 1.6%, down from 2% between April to June. Published at 8:30 a.m. Eastern Time, the GDP numbers should reflect a sharp cutback in business investment due to uncertainty about international trade policy, even as healthy consumer spending and a strong jobs market has propped up the U.S. economy.
Investors will also get a glimpse of employment growth, with Automatic Data Processing issuing its private-sector jobs report for October at 8:15 a.m. ET, but the U.S. Labor Department payrolls and unemployment report on Friday will be more keenly watched among market participants.
Finally, the Federal Reserve will finish up its two-day meeting and release its policy decision at 2 p.m. ET. The broad consensus is for the U.S. central bank to lower its benchmark fed funds rate by a quarter percentage point to a range between 1.50% to 1.75%.
Yet with the U.S. economy still growing at a steady, albeit slowing, clip so far, analysts say the Fed may want to challenge the expectations of investors who still see the central bank carrying out an additional one to two quarter point rate cuts by the end of 2020.
The U.S. Treasury Department will make its refunding announcement at 8:30 a.m. ET, where it will describe how much borrowing it needs to finance over the next two quarters. More important, it could mention tweaks to the size of government debt auctions amid calls for the U.S. Treasury to increase its issuance of shorter-term bills, following the Fed’s decision to buy $60 billion of Treasury bills every month at least through the second half of next year.
What did market participants’ say?
“The worry is that the Fed has basically been making policy based on market demands as opposed to the economic outlook,” Steven Oh, global head of credit and fixed income at PineBridge Investments, told MarketWatch. “They clearly don’t want to surprise the markets as that could create volatility in the market, and that does have a real impact on economic confidence overall. The Fed has a real messaging dilemma to try to guide the market as to why additional rate cuts may not be necessary on the economic outlook.”