U.S. Government bonds trade narrowly mixed ahead of Fed policy decision

The U.S. Government bonds were traded narrowly mixed during a relatively quiet Wednesday session that witnessed data of little significance. Markets now look ahead to the September FOMC statement, accompanied by updated economic projections and Fed Chair Yellen’s post-statement press conference.

The yield on the benchmark 10-year Treasury note hovered around 1.68 percent mark, the yield on 5-year bond also climbed 1/2 basis point to 1.20 percent and the yield on short-term 2-year note bounced 1-1/2 basis points to  0.795 percent by 12:40 GMT.

The United States Federal Reserve in its meeting scheduled on September 20-21 and it is widely expected to leave its interest rates on hold, despite concerns that the strength of the world’s largest economy warrants a rise in borrowing costs. The September FOMC statement as a potential rude awakening for markets that have come to interpret 'data dependence' to mean everything has to be perfect for the FOMC to act.

Given the continued support from labour markets and gradual improvement in pricing measures, coupled with a closing window ahead of the November elections, September sets itself up as quite possibly the best time to act (particularly given that supportive data is not something that can be a guarantee come the December meeting).

The FOMC will probably reduce its estimate of the long-run normal interest rate again to a median of about 2.75 percent, according to a Reuters article based on conversations with Fed officials. This would be down further from 3 percent assumed last time, 3.5 percent in December and 4.25 percent four years ago.

Meanwhile, the S&P 500 Futures traded 6.5 points higher at 2,137.5 by 12:40 GMT.