Treasury safe-haven buying continues ahead of Fed meeting

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U.S. sovereign bonds prices held higher mid-day Monday, as investors remained cautious ahead of the U.S. Federal Reserve meeting and decision on Wednesday after a rocky start to the year for global markets.

The U.S. 10-year yield, which moves inversely to the bond's price, fell to trade just above 2 percent after closing at 2.048 percent on Friday. Meanwhile, the longer-dated 30-year yield was also down at 2.789 percent after finishing at 2.821 percent in the previous session.


As concerns surrounding global growth, uncertainty in China and fresh lows in oil prices gripped markets, investors have rushed into safe-haven Treasurys, pushing the 10-year Treasury under 2 percent last week.

Yields on 30-year bonds also hit their lowest level in five months as the sell-off in stocks around the world sparked buying.

But after three extremely volatile weeks of trading, the selling in global stocks has finally eased up, helped by a turnaround in oil prices and dovish comments from the European Central Bank and Bank of Japan (BOJ). Now the markets will wait to hear from the Fed in the week ahead and from the BOJ at the end of the week.

While it is not expected to take any rate action, the Fed does have the opportunity to further soothe markets with its post-meeting statement Wednesday. There is no news briefing, nor will there be any updated economic or interest rate forecasts.

"We don't see the economy as being soft enough to push the Fed to the sidelines, but the currently tight conditions in financial markets could lead policymakers to hesitate. However, we see the possibility that investors and traders are overreacting to the potential for global slowdown," said chief economist at Daiwa Capital Markets America, Michael Moran.

"If so, financial markets will settle, just as they did after September, and the Fed will follow through with its intentions to tighten policy. Thus, we continue to look for three additional interest rate hikes this year, with the Fed's next move occurring in April," he added.

There are no major data releases due on Monday, with the most notable U.S. data release this week being the first estimate of fourth-quarter gross domestic product on Friday.

Crude oil fell on continuing oversupply woes and profit-taking on Monday, reversing from early gains that followed a surge at the end of last week.

Brent lost $2.17 to $30.01 a barrel on Monday. U.S. crude declined $2.49 to $29.69 a barrel.