10-year Treasury yield hits lowest since Trump election after Fed hints at rate cut

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U.S. Treasury yields fell sharply on Wednesday after the policy statement from the Federal Reserve’s two-day meeting suggested the central bank could cut interest rates later this year.

What are Treasurys doing?

The 10-year Treasury note yield fell 3.6 basis points to 2.023%, its lowest closing level since Nov. 8 2016, the day when Donald Trump scored a stunning presidential election victory against Democratic contender Hillary Clinton.

The 2-year Treasury note yield sensitive to shifting expectations for Fed policy, plunged 10.9 basis points to 1.758%, the lowest since November 2017. The 30-year bond rate was down 1.5 basis points to 2.537%, its lowest since October of 2016. Debt prices move in the opposite direction of yields.

What’s driving Treasurys?

The Fed took out the phrase “patience” from its policy statement, adding that uncertainties around the economic outlook had picked up. As expected, the central bank left its federal-funds rate unchanged at a range between 2.25% to 2.50%.

The Fed’s interest-rate projections, or the “dot plot”, indicated the central bank’s rate-setting committee was split between the options of standing pat or easing rates. Seven members forecast two rate cuts by the end of 2019.

Fed Chairman Jerome Powell appeared to give succor to calls for an “insurance cut” after he said that “an ounce of prevention is worth a pound of cure,” and that the central bank would act appropriately if risks materialized. Analysts have said economic data has yet to point to an imminent recession, despite signs of weakness cropping up in the labor market and the manufacturing sector.

President Donald Trump has repeatedly called for Powell to cut rates, with a report suggesting that the White House contemplated demoting the current Fed Chairman.

Fed decision and Powell press conference: live blog and video

What did market participants say?

“Removing the word patience from the statement is an acknowledgment, they’re going to have to be active to keep this expansion going,” Tom Garretson, a fixed-income portfolio strategist at RBC Wealth Management, told MarketWatch.

“We didn’t expect the median dot to move, but to see seven officials move towards two rate cuts this early is pretty dovish sign of how things are heading,” said Garretson.