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U.S. Treasury yields rose Wednesday, but were off their highs, as traders contended with a selloff in longer-dated government bonds and worries around inflationary pressures.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 1.390% rose 2.5 basis points to 1.374%, after rising as high as 1.42%, while the 2-year note rate TMUBMUSD02Y, 0.128% edged 0.3 basis point up to 0.125%. The 30-year bond yield TMUBMUSD30Y, 2.231% surged 2.6 basis points to 2.225%, after pushing above 2.25%. Bond prices move inversely to yields.
What’s driving Treasurys?
Fed Chairman Jerome Powell reiterated to Congress on Wednesday that he would clearly communicate when the central bank would consider tapering its asset purchases. He also suggested a potentially longer timetable for a reduction of the central bank’s bond-buying and potentially the first interest rate increase away from its current range of 0% to 0.25%.
Powell’s remarks initially helped to contain the rise in bond yields on Wednesday, but traders continued to push longer-term rates higher, a move analysts attribute to a recognition that the Fed has less control of bonds with extended maturities.
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Long-term Treasury rates have risen in risen weeks, partly in anticipation of broader inflationary pressures that are expected materialize later this year, likely driven by a combination of the continued reopening of the U.S. economy, pent-up spending by consumers and expectations of further fiscal relief from Washington.
Fanning the bond yield selloff, the U.S. Food and Drug Administration said Johnson & Johnson’s JNJ, +1.94% COVID-19 vaccine met the requirements for emergency use authorization, adding to the array of weapons against the coronavirus.
Senior Fed officials continued to sound dovish on Wednesday, with Powell delivering another round of testimony, this time before a House committee. Fed Gov. Lael Brainard said the U.S. economy was still far from full employment, while Fed Vice Chairman Richard Clarida said he was not worried about inflation.
In U.S. economic data, new home sales for January rose to an annualized pace of 923,000, up from 885,000 in December.
What did market participants say?
“Why are rates moving higher? Powell says it’s an endorsement of the economy. Until rising rates affect broader financial conditions, and so long as the move is orderly from here, the Fed is probably okay with it,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities, in an interview.
