US Treasury yields moved lower early Thursday following the Federal Reserve's decision to keep interest rates unchanged, though lingering uncertainty about the central bank's next move continued to pressure the bond market.
At 7:50 AM ET, the 10-year Treasury yield slipped 2 basis points to 5.016%. The two-year yield dropped 4 basis points to 4.693%, while the 30-year yield fell 2 basis points to 5.342%.
The moves came after the Federal Open Market Committee voted 10-2 on Wednesday to maintain the federal funds rate in the 3.75%-4% range, a widely expected outcome. In its statement, the Fed acknowledged that inflation remains elevated and said additional data would help guide future policy decisions.
Fed Chair Kevin Warsh pushed back against providing a detailed forward guidance, stating, "I don't believe in forward guidance, absent exigent circumstances, absent a crisis." He also noted that financial conditions have tightened for some businesses and households, but stopped short of describing them as broadly restrictive.
Despite the pause, market participants continue to anticipate further tightening. According to CME FedWatch data, the probability of a 25-basis-point rate increase at the December 9 meeting stands at 85.7%.
Treasury trading reflected divergent expectations across maturities. Short-term yields fell as investors welcomed the absence of an immediate hike, while longer-dated bonds faced selling pressure, pushing their yields higher. This divergence steepened the yield curve, though yields eased across the board early Thursday.
The spread between longer- and shorter-term yields had widened to 34.1 basis points earlier this month before narrowing in recent weeks. Investors remain uncertain about how much more monetary tightening may be needed to contain inflation, especially with energy costs and resilient demand complicating the outlook.
"Investors should prepare for interest rates to remain elevated with the Fed focused on bringing inflation back towards its 2% target," said Phil Blancato, chief market strategist at Osaic, in comments to Reuters.
Thursday's economic data could provide further clues. The personal consumption expenditures price index, the Fed's preferred inflation gauge, is due for release alongside the advance estimate of third-quarter GDP and personal income and spending figures. These numbers may influence expectations for December and the direction of Treasury yields.
This article is for informational purposes only and does not constitute financial advice.
