Bonds News

TREASURIES-Yields fall before Wednesday's Fed rate decision

 (Updates prices)
    * Wednesday Fed statement awaited for rate hike outlook
    * Futures traders price in less than one hike in 2019

    By Karen Brettell
    NEW YORK, Dec 18 (Reuters) - U.S. Treasury prices gained on
Tuesday a day before the Federal Reserve’s highly anticipated
interest rate decision from its two-day meeting is announced.
    The Fed is expected to hike interest rates for the fourth
time this year as U.S. growth continues to look solid.
    Investors, who are concerned about slowing international
growth, volatile stock markets and the possibility that U.S.
economic strength will weaken, will focus on any indications
from the Fed that it may be close to pausing its tightening
cycle because of these issues.
    “The market’s thinking more and more the Fed may be just
about done. It’s not quite there, but it’s not got a lot yet to
go,” said Michael Schumacher, head of rate strategy at Wells
Fargo in New York.
    Comments by Fed Chairman Jerome Powell in late November that
the key interest rate was “just below” neutral, a level that
neither brakes nor boosts the economy, increased speculation
that the U.S. central bank may pause hikes sooner than
previously expected.              Fed Vice Chair Richard Clarida
had made similarly dovish comments less than two weeks earlier.
    Investors on Wednesday will look for any modification in the
Fed’s language indicating that it may take a meeting-by-meeting
approach to raising rates, as opposed to indicating that a
predetermined number of rate hikes is still likely, Schumacher
    “Is it meeting-to-meeting or not? I think that’s what people
are really keen to look at,” he said.
    The Fed has indicated that three additional rate hikes are
likely next year, based on the median expectations in its rate
projections known as the “dot plot.” If that falls to two rate
hikes or less, it will signal to markets that the Fed is closer
to pausing its rate increases.
    Interest rate futures are only partially pricing in one rate
hike in 2019, after fully pricing in two rate hikes for the year
at the end of October, according to the CME Group’s FedWatch
    Benchmark 10-year notes             gained 9/32 in price to
yield 2.826 percent, after earlier dropping to 2.821 percent,
the lowest level since Aug. 27. The yields have fallen from a
seven-year high of 3.261 percent on Oct. 9. 

 (Reporting by Karen Brettell
Editing by Leslie Adler)