U.S. Treasury yields pulled back on Wednesday as investors awaited the Federal Reserve’s rate policy decision and more insight on the economic impact of President Donald Trump’s tariffs and escalating tensions in the Middle East.
The benchmark 10-year Treasury note fell more than 3 basis points to 4.355%. The 2-year Treasury yield also slipped 3 basis points to 3.92%.
One basis point is equivalent to 0.01%, and yields and prices move in opposite directions.
The Fed’s interest rate decision will be announced at 2 p.m. ET. Traders are pricing in a 99.9% chance that the central bank will hold interest rates steady, according to the CME FedWatch Tool. Federal Open Market Committee members forecast only two rate cuts this year.
“A lot has happened since their last meeting in early May, including the dialing back of China tariffs, the Moody’s downgrade of the US credit rating, as well as the significant escalation in the Middle East,” Deutsche Bank analysts said in a note. “So given that uncertainty and the potential for fresh inflationary spikes, they’re widely expected to keep rates on hold again, and it means the focus will be on the dot plot for where they expect rates to go next.”
They added: “Our US economists think it’ll only signal one rate cut this year, which would be a hawkish shift from March, when they still signaled two cuts. However, they think it’s a close call, and they expect the Fed to mostly maintain existing signals about policy.”
Yields came under a bit of pressure earlier Wednesday after May housing starts data missed estimates, coming in at 1.256 million versus the 1.35 million that economists polled by Dow Jones were expecting. Meanwhile, jobless claims for the week ended June 14 totaled a seasonally adjusted 245,000, according to a Labor Department report released Wednesday. That’s just below the Dow Jones estimate for 246,000.
While the housing starts figure is “still a healthy number,” according to Willy Walker of Walker & Dunlop, he added that the real estate market is facing many challenges, including President Donald Trump’s tariffs.
“Tariffs, labor and higher-for-longer rates have clearly had an impact – on consumer demand and home builder supply,” the CEO told CNBC. “Home builders have done a terrific job of buying-down interest rates to make their homes more affordable, but with increasing costs and questions about access to labor, it makes sense that there would be a pullback.”
The bond market will be closed on Thursday for the Juneteenth holiday.
