Short-term Treasury yields rose Wednesday, coming sharply off their session lows, after Federal Reserve Chairman Jerome Powell said the recent decline in inflation was unlikely to last, and a change to interest rates wasn’t necessary.
What are Treasurys doing?
The 2-year note yield TMUBMUSD02Y, +2.32% sensitive to shifting expectations for Fed policy, rose 3.2 basis points to 2.300%, from an intraday low of 2.210%. The short-term maturity marked its biggest daily jump in more than two weeks.
The benchmark 10-year Treasury note yield TMUBMUSD10Y, +0.32% was up 0.5 basis point to 2.511%, from a session low of 2.459%. The 30-year bond yield TMUBMUSD30Y, -0.67% fell 1.7 basis points to 2.918%. Bond prices move inversely to yields.
What’s driving markets?
The central bank emphasized its patient stance in its policy statement, and kept interest rates unchanged in a range between 2.25% and 2.50% after its two-day meeting. It cut the interest rate on excess reserves, or IOER, to 2.35% from 2.40% to keep the fed-funds rate within the target range.
See: Fed holds interest rates steady as economy grows at ‘solid rate’ and inflation stays low
Fed Chairman Jerome Powell said the cut on IOER had no bearing on the Fed’s policy stance. He also said “transitory” factors was depressing inflation, and that he was confident the strong job market would eventually produce the wage pressures needed to achieve its inflation target. “There is reason to think that these will be transient,” he said during the news conference following the 2:30 p.m. policy statement.
The recent inflation decline had stoked speculation among bond-market bulls that the central bank could push for a rate cut soon despite first-quarter economic growth remaining robust. Core personal-consumption expenditures stood at an annual 1.6% rate in March.
Live: Powell addresses reporters after Fed keeps rates unchanged
What did market participants say?
“There’s every reason for the Fed to stay in place right now,” Jason Thomas, chief economist at investment adviser AssetMark, said in an interview with MarketWatch.
“It’s unlikely for inflation to fall low enough for the central bank to ease, on the other hand, it does seem unlikely to reach 2%,” Richard Piccirillo, senior portfolio manager at PGIM Fixed Income told MarketWatch.
What else is on investors’ radar?
April’s ISM manufacturing index came in at 52.8%, well below analysts’ expectations of 54.7%, showing the U.S.' s industrial sector is still feeling the drag from the global trade slowdown. Any reading above 50 represents growth in economic activity, while a number below that level indicates contraction.
On a more positive note, Automatic Data Processing reported private sector employment grew 275,000 in April, from 151,000 in April.
The Treasury Department kept sizes of its debt auctions unchanged for the third-quarter, and will sell $84 billion of Treasury notes and bonds next week. The U.S.’s burgeoning fiscal deficits have been cited as a risk to the bond market, but so far domestic and foreign bond buyers have lapped up U.S. government paper as global growth fears stoke demand for haven assets.
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