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Bond Report: Treasury yields climb, with monetary policy at ‘inflection point’ for stocks and bonds

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Long-dated U.S. government bond yields were heading higher Wednesday morning, as investors appeared eager to pore over the minutes of the Federal Reserve’s April meeting minutes for clues on the central bank’s tolerance for rising pricing pressures.

How are Treasurys performing?
  • The 10-year Treasury yield
    TMUBMUSD10Y,
    1.659%

    was at 1.663%, up 2.2 basis points from Tuesday’s 3 p.m. Eastern Time levels.
  • The 30-year Treasury
    TMUBMUSD30Y,
    2.379%

    was yielding 2.381%, up 1.8 basis points.
  • The 2-year Treasury note rate
    TMUBMUSD02Y,
    0.149%

    was at 0.145%, down 0.6 basis point.

Bond prices fall as yields rise, and vice versa.

What’s driving fixed-income trading?

A downturn in stocks and bonds on Wednesday was largely pegged to inflation fears, ahead of the release of minutes from the Fed’s April 27-28 meeting, which will come out at 2 p.m. Eastern Time.

Inflation has become a buzzy topic in the recovery phase from the COVID pandemic in the U.S. because investors aren’t sure that pricing pressures, which have emerged in recent data, will prove as transitory as the U.S. central bank anticipates.

A key reading of consumer inflation for April rose at the fastest pace in nearly 13 years, signaling greater stress on the economy as businesses grappled with supply shortages that are raising the cost of many goods and services.

One big fear is that inflation will run hotter than expected for a longer period than estimated and force the Fed to cool the economy by removing its easy-money policies faster than its current projections for around 2024.

Meanwhile, U.S. stocks were poised to fall sharply lower early Wednesday, with futures for the Dow Jones Industrial Average
DJIA,
-0.78%

YM00,
-0.81%

indicated more than 300 points lower.

Looking ahead, investors will be watching for an auction of 20-year bonds
TMUBMUSD20Y,
2.287%

at 1 p.m.

What are fixed-income strategists saying?

“The impact of monetary policy expectations on equity valuations is at an inflection point — good news once again being bad insofar as it pulls forward the timeline for the Fed to scale back accommodation,” wrote BMO Capital Markets strategists Ian Lyngen and Ben Jeffery, in a Wednesday note.

“We see no reason to assume April’s inflation data will shift the Fed’s tapering agenda or timing, if for no other reason than the mixed reads on the employment landscape and consumption rebound,” the analysts wrote.

Europe Markets: European stocks and U.S. equity futures are under pressure as inflation worries persist

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