Bond Report: Treasury yields see strong rise as focus turns to inflation data

by | Jan 10, 2023 | Stock Market

U.S. Treasury prices weakened Tuesday, sending yields significantly higher, as traders weighed earlier comments by Federal Reserve officials and awaited a key inflation reading due later this week. The rise in yields was tempered by an auction of 3-year Treasury notes that met strong demand, analysts said.

What’s happening
The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.257%
rose 5.4 basis points to 4.249%. Yields and debt prices move opposite each other.

The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.622%
rose 10.5 basis points to 3.623%.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.750%
climbed 9.9 basis points to 3.749%.

What’s driving markets Treasury yields were lifted, with traders citing remarks by Fed officials a day earlier affirming a commitment to significantly raising rates in 2023. The Fed raised its fed-funds rate last year from near zero to a range of 4% to 4.25%, sending bond yields soaring. Yields had dropped sharply at the end of last week and at the beginning of this week as investors made bets that Friday’s U.S. December jobs report showing a slowing pace of wage inflation may encourage the Fed to ease its tightening of monetary policy. Yields ended Monday at their lowest since mid-December. However, San Francisco Fed President Mary Daly and Atlanta Fed President Raphael Bostic said Monday they thought the central bank will have to raise the central bank’s policy interest rate above 5%, with the latter adding they may need to stay there for “a long time.” On Tuesday, eagerly awaited remarks by Fed Chairman Jerome Powell during a panel discussion hosted by Sweden’s central bank in Stockholm offered traders little in the way of fodder. Powell’s remarks focused largely on central-bank independence and the institution’s “narrow” role in climate policy. See: The Fed is not a ‘climate policy maker,’ Powell says Market participants, meanwhile, think the central bank is expected to take its fed-funds rate target to no higher than 4.9% by June 2023, according to 30-day fed funds futures, and will have cut rates to 4.5% by December. Investors are pricing in a 78.2% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.50% to 4.75% …

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