Treasury yields rise again – WSJ

Sales in U.S. government bonds accelerated on Thursday, and yields rose again a day after the Federal Reserve leveled the market.

In recent trading, the yield on the standard 10-year U.S. Treasury note was 1.731%, according to Tradeweb, compared to 1.641% on Wednesday.

Yields, which rise as bond prices fall, have been rising for months, boosted by expectations of a vaccine and government stimulus that fueled economic recovery that investors say could lead to significantly higher inflation and eventually force the Fed to raise short-term interest rates. .

On Wednesday, yields fell after the central bank issued its latest policy statement, again showing that officials plan to take a patient approach to raising the benchmark of the federal funds while keeping inflation above their long-term. 2% goal trying to post.

The short-term yields of Treasury, which is particularly sensitive to the outlook for Fed policy, led to the declines as Fed Chairman Jerome Powell reinforced the message in a press conference.

However, yields on Treasurys, which are maturing in just five years, were sharp again on Thursday, a sign of the severe headwind facing the market.

Despite the signals sent by the Fed, many investors think that the central bank should start raising interest rates by 2023 in order to combat an expected increase in inflation. The Fed’s promise to support the economy now could lead to faster rate hikes even later, as it could help generate the kind of inflation that has been largely lacking over the past decade.

Meanwhile, other factors are also working against effects, including a large increase in Treasury’s supply, as the government finances trillions of dollars in spending on coronavirus relief and uncertainty over whether the Fed will extend temporary regulatory relief to large banks that could directly affect how much they hold in the future Treasurys.

Added to the market pressure Thursday, is a report that the Bank of Japan could allow the ten-year Japanese government bonds to trade in a wider range, some analysts said. A strong report on jobs in Australia further contributed to the weak effect of the bond market during overnight trading.

Federal Reserve Chairman Jerome Powell tells WSJ Nick Timiraos that there is no plan to raise interest rates until labor market conditions are in line with maximum employment and inflation is sustainable at 2%. Photo: Eric Baradat / Agence France-Presse / Getty Images.

‘My interpretation is that President Powell yesterday gave us the green light for the reflective trade, and the absence of a dip-buying interest. [overnight]…. reaffirmed the idea that no one is yet ready to take this trade, ‘said Ian Lyngen, head of BMO Capital Markets’ US exchange rate strategy.

Investors and analysts are paying close attention to US Treasury yields as they help set interest rates across the economy. Higher returns generally translate into higher borrowing costs for individuals and businesses, leaving some wondering whether the Fed could try to stop the trend by increasing its monthly purchases of longer-term Treasurys.

However, Fed officials have repeatedly suggested that they still see no reason to take that step, as the strong demand for riskier assets such as equities and corporate bonds has meant that businesses still have access to cheap financing.

Write to Sam Goldfarb by [email protected]

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