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Treasury Bond Yields Approach Record Low After Fed Statement -- Update

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07/29/2020 | 05:23pm EDT

By Matt Wirz

Treasury bond yields slipped after the Federal Reserve held interest rates steady Wednesday afternoon and said the U.S. economy still faced economic challenges from the coronavirus pandemic.

Yields continued their retreat toward record lows after Fed Chairman Jerome Powell emphasized the central bank's commitment to aggressive economic stimulus. Fed officials have been considering how to support the economy after this spring's emergency interventions.

With no change by the rate-setting committee, analysts parsed Mr. Powell's comments for clues about the path of monetary policy and the economy.

"The Fed appears to be in no hurry to change the status quo," said Charlie Ripley, a strategist for Allianz Investment Management. "The committee reiterated their dovish policy stance and the need to maintain accommodation until it's clear the economy has recovered."

The yield on the benchmark 10-year Treasury note fell to 0.578% Wednesday, down from 0.581% on Tuesday and 0.682% at the start of July, according to data from Tradeweb. The move put the 10-year yield at its third-lowest close of the year but still well above the 0.498% nadir hit in March when the pandemic began in the U.S.

Increased buying pushed the 10-year yield even lower in after-hours trading, to around 0.568%, as markets absorbed Mr. Powell's comments.

"Most people think that this meeting is a nonevent, but I disagree," said Priya Misra, head of rates strategy at TD Securities, before the Fed announcement. "I think the market is setting up for big action soon."

If Mr. Powell struck a dovish tone, that would add momentum to the gradual fall of yields in recent months, while a less accommodative shift could cause yields to snap higher, Ms. Misra said.

With stock and bond markets broadly recovered from early-year losses, investors are homing in on when the Fed might pivot to focusing on economic growth rather than pumping liquidity into markets.

"The committee has been heard loud and clear that it is staying the course with its unprecedented monetary support," said Jason Pride, chief investment officer of private wealth at Glenmede.

Corporate-bond markets rose in tandem with the rally in Treasury bonds, and the spread of investment-grade bond yields over Treasuries ratcheted tighter. Bond prices rise as yields fall. The price of a $2.5 billion bond AT&T Inc. issued this week climbed to around 102.64 Wednesday from 100.15 on Monday, according to data from MarketAxess.

In emerging markets, all eyes are on negotiations between Argentina and its bondholders over how to restructure the South American nation's bonds. Three bondholder groups with members like AllianceBernstein, Ashmore Investment Advisors Inc. and BlackRock Inc. claim to control more than half the country's bonds and sent Finance Minister Martín Guzmán a letter Monday promoting the restructuring proposal they disclosed earlier this month.

Argentina's 5.625% bond due in 2022 traded around 44.25 cents on the dollar Wednesday, up from around 42 in mid-July.

--Aaron Kuriloff contributed to this article.

Write to Matt Wirz at matthieu.wirz@wsj.com

 

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