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Treasury yields fall slightly despite looming Fed policy verdict

U.S. Treasury yields fell slightly early on Wednesday, even as investors awaited the much-anticipated outcome of the Federal Reserve’s policy meeting in the afternoon.

The yield on the benchmark 10-year Treasury note fell less than a basis point to 1.496% at 3:45 a.m. ET. The yield on the 30-year Treasury bond drifted lower to 2.195%. Yields move inversely to prices.

The Federal Open Market Committee is set to wrap up its two-day monetary policy meeting at 2 p.m. ET on Wednesday afternoon, with the release of its usual statement and quarterly economic projections. Fed Chairman Jerome Powell is then due to hold a press briefing at 2:30 p.m. ET.

The Fed is not expected to take any action in this meeting but economists expect the central bank to signal that it is starting to think about tapering bond purchases.

The Fed will also release new forecasts on Wednesday, which could indicate a possible first rate hike penciled in for 2023. Previously, Fed officials hadn’t come to a consensus for a rate hike through 2023.

Scott Ruesterholz, portfolio manager at Insight Investment, said on Tuesday that this was among the “most consequential Fed meetings in some time as the committee balances these aspects of the dual mandate.”

“There is a tremendous amount of uncertainty: how much of the inflation is being driven by transitory factors, like supply chain disruptions, and how much of the slower job growth is being driven by temporary measures like enhanced unemployment benefits,” Ruesterholz explained.

In light of this uncertainty, Ruesterholz said his firm expected the Fed to strike a “patient tone” in this meeting, “wanting to ensure they do not overreact and slow the pace of recovery.”

He added that Insight Investment did not expect the Fed to “rush into tapering” in this meeting. Instead, the firm expected the central bank’s annual economic symposium in Jackson Hole in August a likelier starting point for discussion of tapering, “paving the way for an official announcement potentially by December of this year.”

Meanwhile, data for building permits and housing starts in May is due to be released at 8:30 a.m. ET. Import and export prices for May are also set to come out at 8:30 a.m. ET.

An auction is due to be held on Wednesday for $35 billion of 119-day bills.

CNBC’s Patti Domm and Pippa Stevens contributed to this market report.

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