After weeks of buildup, bond traders barely reacted on Wednesday as Federal Reserve officials penciled in a sooner-than-expected rate increase for 2022 and sent a strong sign that they are almost ready to start pulling back on monthly bond purchases.
The 2-year Treasury yield, the most sensitive to near-term interest rate moves, finally shot up briefly above 0.24% about 45 minutes after the Fed’s rate projections came out. Meanwhile, the widely followed 10-year rate fell below 1.30% to touch a New York session low following the Federal Open Market Committee’s decision — before bouncing back toward 1.33%, not far from where it was on Tuesday.
The reasons for the market’s relatively calm responses include the lack of a formal tapering announcement by the Fed, as well as a fewer-than-expected number of policy makers calling for a rate increase next year, investors said.
“There’s still a lack of clarity around when officials will be tapering, and the market was looking for more members to move forward rate hikes to 2022,” Rob Daly, director of fixed-income at Glenmede Investment Management, said via phone.
In an email, Cliff Hodge, chief investment officer for Cornerstone Wealth, said “market reaction has been somewhat muted, as investors weigh a mixed message. The lack of a formal taper announcement is clearly dovish,” compared to what he regards as “a somewhat surprising hawkish dot plot, which now increases the odds of a rate hike in 2022.”