Treasury yields rise again – WSJ

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

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

Yields on short-term treasuries, which are particularly sensitive to the prospects of Fed policy, have led to declines while Fed Chairman Jerome Powell reinforced that message at a news conference.

However, yields on Treasurys maturing in just five years rose again on Thursday, a sign of the severe winds the market is facing.

Despite the signals the Fed is sending, many investors believe that the central bank will have to start raising interest rates immediately after 2023 to combat an anticipated rise in inflation. The Fed’s promise to support the economy now could lead to even faster rate hikes later on, as it could help generate the kind of inflation that has been largely lacking over the past decade, these people say.

Meanwhile, other factors are also working against bonds, including a significant increase in treasury supply as the government funds billions of dollars in coronavirus bailout spending and uncertainty over whether the Fed will extend the temporary regulatory exemption for large banks, which could have a direct impact on hold in Treasurys in the future.

Market pressure was compounded on Thursday by a report that the Bank of Japan could allow Japanese government bonds to trade for 10 years over a longer period, some analysts said. A strong employment report in Australia further added to the weakness of the bond market during overnight transactions.

“My interpretation is that President Powell gave us the green light for yesterday’s reflective trade and the absence of any buying interest. [overnight]…. has reaffirmed this idea that no one is willing to step in front of this trade yet, “said Ian Lyngen, head of US strategy at BMO Capital Markets.

Investors and analysts pay close attention to US Treasury yields as it helps determine interest rates across the economy. Higher yields generally translate into higher borrowing costs for individuals and companies, prompting some to question whether the Fed could try to stop the trend by increasing its monthly long-term treasury purchases.

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

Write to Sam Goldfarb at [email protected]