Treasury yields rise again – WSJ

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

On Wednesday, yields fell after the central bank released its latest policy statement, which showed once again that officials plan to take a patient approach to raising benchmark federal fund rates as they try to push inflation above the its 2% target over a sustained period.

Short-term treasury yields, which are especially sensitive to the prospects of Fed policy, led the declines as Fed Chairman Jerome Powell reinforced that message at a news conference.

However, yields on treasures maturing in just five years rose sharply again on Thursday, a sign of strong headwinds facing the market.

Despite signals from the Fed, many investors think the central bank will have to start raising interest rates as soon as 2023 to combat the projected rise in inflation. The Fed’s promise to support the economy now could even lead to faster rate hikes later on, as it could help generate the kind of inflation that has been largely lacking in the last decade, according to these people.

Meanwhile, other factors are also working against the bonds, including a large increase in the supply of treasury, as the government funds billions of dollars in coronavirus relief spending and uncertainty over whether the Fed will extend temporary regulatory relief for large banks that could directly affect will remain in treasury in the future.

Some analysts added to market pressure on Thursday a report that the Bank of Japan could let the ten-year Japanese government debt cede trade in a wider range. A strong report on occupations in Australia further added to the weakness of the bond market during overnight trading.

“My interpretation is that President Powell gave us the green light yesterday on the reflective trade and the absence of any interest in the dive purchase [overnight]…. it reaffirmed this idea that no one is yet willing to stand up to this trade, ”said Ian Lyngen, head of US-type strategy at BMO Capital Markets.

Investors and analysts pay close attention to U.S. Treasury yields because they help determine interest rates across the economy. Higher yields generally translate into higher borrowing costs for individuals and businesses, prompting some to wonder if the Fed could try to stop the trend by increasing its long-term monthly purchases of treasury.

Fed officials, however, have repeatedly suggested that they see no reason to take this step yet, because strong demand for riskier assets, such as stocks and corporate bonds, has meant companies still have access to cheap financing. .

Write to Sam Goldfarb at [email protected]