The U.S. government bond sale gained traction on Thursday after Federal Reserve Chairman Jerome Powell said current central bank policy is appropriate, disappointing some investors who hoped it could indicate increased concern over the recent surge in Treasury yields.
The yield on the 10-year Treasury note, which rises when bond prices fall, stood at 1,547%, according to Tradeweb, down from 1,479% before the start of Powell’s interview at The Wall Street Journal Jobs Summit and at 1,469% on Wednesday.
Powell said the recent surge in Treasury yields had caught his attention and suggested that the Fed might intervene if overall financial conditions tighten much more. But he stopped short of pointing out that the Fed was close to buying more long-term Treasuries each month in an effort to contain returns, as some investors had thought possible.
“The market had clearly been bracing for more guidance than the Fed was prepared to give at this point,” said Jim Vogel, interest rate strategist at FHN Financial.
Before Thursday, Treasury yields had posted one of their steepest increases in recent years, and the 10-year yield had risen from about 0.9% at the beginning of the year.
Investors and Fed officials alike say that rising yields generally reflect a positive outlook, thanks to the distribution of coronavirus vaccines and large amounts of government stimulus.
However, higher yields could also affect the economy by increasing borrowing costs for individuals and businesses, leading some to think that the Fed could try to prevent further increases.
Stock prices also fell after Powell’s comments, reflecting concerns about the bond market.
Without intervention, many analysts believe that yields could continue to rise this year, with the 10-year yield approaching 1.75% or even 2% as investors hedge against the possibility that the Fed could start to rise. short-term interest rates for years to come.
Some, however, think that yields are already higher than they should be, arguing that long-term forces are likely to contain inflation and make it difficult for the Fed to raise rates.
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