The yields on ten-year authorities bonds are over 1.7% regardless of the Fed’s reassurance
The US 10-year Treasury bond yield surged over 1.7% Thursday, despite assurances from the Federal Reserve that it had no plans to hike interest rates or curtail its bond-buying program anytime soon.
The yield on the 10-year benchmark Treasury note rose 9 basis points to 1.71% by 11:00 a.m.CET. The yield on the 30-year government bond rose 4 basis points to 2.478%. The returns move in reverse to the prices. (1 basis point corresponds to 0.01%.)
The 10-year price was above 1.75% at the start of the meeting, reaching its highest level since January 24, 2020, when it peaked at 1.762%. This is also the first time since August 2019 that the 30-year-old has traded above 2.5%.
Peter Kraus, CEO of Aperture Investors, said in CNBC’s “Squawk Box” that interest rate hikes in recent months reflect growing confidence in the economic outlook.
“Rising interest rates from the level they were at do not mean financial tightening,” said Kraus. “This means that the economy is growing, that some price increase is expected and that companies that can benefit from higher prices and increased economic activity will also do well in terms of price increases in the market.”
After the Fed’s two-day political meeting concluded on Wednesday, the central bank announced that it sees stronger economic growth than previously thought and forecasts that gross domestic product will rise to 6.5% in 2021. This corresponds to a forecast of 4.2% GDP growth in December.
The Fed also expects core inflation to hit 2.2% this year, but expects it to stay around 2% over the long term. The central bank also said it has no plans to raise interest rates until 2023 and that it will continue its program of buying bonds worth at least $ 120 billion a month.
These projections confirmed the idea that the Fed is ready to let the economy run hot for a period of time so that the US can recover from the Covid pandemic. Bond investors fear that this means the central bank is pushing inflation higher than normal, which is undermining the value of bonds.
Fed Chairman Jerome Powell reiterated that the central bank would like to see constant inflation above its 2% target and a substantial improvement in the US labor market before considering changes in interest rates or monthly bond purchases.
Quilter Investors’ portfolio manager Hinesh Patel said on Wednesday following the Fed policy decision, “While no response is the only move offered, whatever Powell is doing at this point, the Fed is putting bond markets in danger.”
“If they don’t do anything, the bond market will continue to drive yields higher so the Fed can increase or adjust bond purchases. If it acts now, it will be accused of over-stimulating and getting too hot,” said Patel.
However, Willem Sels, chief investment officer, private banking and wealth management at HSBC, said the Fed’s message of a gradual normalization of policy meant that this was “a very different situation from 2013, when bond rejuvenation surprised the market and led the real The return is increasing rapidly and significantly, leading to stocks, gold and risk-weighted assets being sold. “
There have been some concerns that the recent surge in bond yields and inflation expectations could mark a repeat of the 2013 “tantrum”. That was when government bond yields suddenly spiked on the market panic after the Fed announced it would curtail its quantitative easing program.
Initial jobless claims for the previous week were below the expected 770,000, but the Philly Fed survey of the production outlook was better than expected.
Auctions are scheduled for Thursday for four-week bills worth $ 40 billion, eight-week bills worth $ 40 billion, and nine-year 10-month inflation-linked government bond securities worth $ 13 billion.
– CNBC’s Thomas Franck contributed to this report.