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Bond Report: Treasury yields come off highs as Fed’s Powell pushes back on taper speculation

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U.S. Treasury yields pulled away from their highs on Wednesday as Federal Reserve Chairman Jerome Powell said it wasn’t time yet to discuss tapering the central bank’s asset purchases.

What are Treasurys doing?

The 10-year Treasury note yield
BX:TMUBMUSD10Y
was flat at 1.621%, after rising as high as 1.657% earlier in the day. The 30-year bond yield
BX:TMUBMUSD30Y
added 0.8 basis points to 2.301%, while the 2-year note rate
BX:TMUBMUSD02Y
fell 1.2 basis points to 0.166%. Bond prices move inversely to yields.

What’s driving Treasurys?

Fed Chairman Jerome Powell stuck to his dovish stance at the news conference after the central bank’s policy meeting on Wednesday, suggesting the Fed would remain wary of laying the ground for a tapering of its monthly asset purchases for now.

Since last year, the Fed has been buying $80 billion of Treasurys and $40 billion of mortgage-backed securities every month.

The Fed released its policy statement and kept its policy interest rate unchanged at a range between 0 and 0.25%.

The statement said indicators of employment and economic activity had strengthened, and that the industries hurt most by the pandemic had shown signs of improvement. In addition, the Fed said inflation had risen but largely due to transitory influences.

See: Time to ‘buckle up’ as ‘inflation’ mentions soar during earnings calls, BofA warns

Investors had been anticipating the Fed would tweak the language in its policy statement to acknowledge the improvement in the labor market, following the close-to-1-million job gains in March.

What did market participants say?

“If the recovery continues to gain strength, we expect the Fed will need to move away from peak policy accommodation. For now, the Fed is maintaining a tight grip on the bond market, but it appears like a discussion on tapering bond purchases is right around the corner,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

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