Treasury yields fall as investors wait for Fed meeting to get underway

U.S. Treasury yields retreated on Tuesday as investors geared up for the Federal Reserve’s two-day meeting from which a quarter percentage point interest rate cut is expected.

What are Treasurys doing?

The 10-year Treasury note yield

TMUBMUSD10Y, -1.70%

  fell 2.2 basis points to 1.821%, while the 2-year note rate

TMUBMUSD02Y, -1.37%

  was down 2 basis points to 1.745%. The 30-year bond yield

TMUBMUSD30Y, -1.51%

  slipped 2.3 basis points to 2.288%.

What’s driving Treasurys?

The U.S. central bank will begin its two-day meeting on Tuesday. The Fed is widely forecast to cut its benchmark interest rate by a quarter percentage point to a range of 1.75% to 2%, marking the second rate cut this year. Fed Chairman Jerome Powell is likely to outline reasons for not signalling a full easing cycle, at the same time, he may underline potential stimulus measures the central bank could bring out if global risks come to the fore.

See: 3 things to watch as Fed meets on interest rates

Investors continued to reel from the drone strike on Saudi Arabian oil facilities over the weekend, which sent crude oil prices on their biggest daily rise since 2008 on Monday.

Hong Kong’s Hang Seng Index

HSI, +2.78%

  fell 1.2% and the Shanghai Composite

SHCOMP, -1.74%

  was down 1.7%.

In economic data, U.S. industrial production numbers for August is set for release at 9:15 a.m. Eastern. Economists polled by MarketWatch anticipate an increase of 0.4%. Investors will also receive a glimpse of foreign purchases of U.S. government paper via the Treasury International Capital report at 4 p.m. Eastern.

What did market participants’ say?

“Today, the Fed begins their two-day policy meeting and markets are widely expecting a 25 basis point rate cut this week, with the dot plot falling, as Fed Chair Powell struggles to maintain his case for a mid-cycle adjustment,” wrote Edward Moya, senior market analyst for OANDA. “Powell will probably reiterate the Fed will do what it can to sustain the expansion and that will keep the possibility for QE to be announced over the next couple meetings if one of the major geopolitical risks blows up.”

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