U.S. Government bonds trade narrowly mixed ahead of FOMC decision, 25bps hike fully priced in

The U.S. Treasuries traded narrowly mixed Tuesday as investors await the Federal Reserve’s last monetary policy decision for 2016. Also, markets look to see how likely the Fed is to continue along a gradual rate hike path as we move into 2017.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 1-1/2 basis points to 2.46 percent, the yield on long-term 30-year Treasury also dipped 1-1/2 basis points to 3.14 percent and the yield on short-term 2-year note bounced 1/2 basis point to 1.14 percent by 11:20 GMT.

Markets will remain focused on the Federal Reserve last monetary policy decision for 2016, which is scheduled to be released on December 14. The Federal Reserve is expected to increase the target range of the key interest rate by 25 basis points to 0.50-0.75 percent, with a unanimous decision. Little change to the statement, though the Committee is likely to acknowledge that market-based measures of inflation compensation have risen further.

With the economy seemingly close to ‘full employment’ there is a now a case for more hawkish guidance. The sell-off in US Treasuries reflects concerns looser fiscal policy may cause the Fed to move more aggressively. For now, the Fed will probably not change its rhetoric, while it waits to see what fiscal policy measures are enacted, said Lloyds Bank in its research note.

Lastly, ahead of Wednesday’s statement, markets receive import prices, followed by a long-term 30-year bond auction later in the session.

Meanwhile, the S&P 500 Futures traded 7.25 points higher at 2,257 by 11:20 GMT. While at 11:00 GMT, the FxWirePro's Hourly Dollar Strength Index stood neutral at -20.18 (lower than -75 represents bearish trend).