Treasury yields fall regardless of hawkish Fed replace

U.S. Treasury yields drifted lower on Thursday morning, as investors digested the Federal Reserve’s raised inflation expectations and signaling that interest rate hikes would come sooner than expected.

The yield on the benchmark 10-year Treasury note fell less than a basis point to 1.56% at 4 a.m. ET. The yield on the 30-year Treasury bond dipped to 2.179%. Yields move inversely to prices.

The Fed raised its headline inflation expectation to 3.4%, a full percentage point higher than the March projection, after its two-day policy meeting concluded on Wednesday afternoon.

However, the post-meeting statement reiterated the Fed’s view that inflationary pressures were “transitory.”

The Fed also indicated that rate hikes could come as soon as 2023, after saying in March that it saw no increases until at least 2024. The so-called dot plot of individual member expectations pointed to two hikes in 2023.

Nevertheless, Fed Chairman Jerome Powell said in a press conference following the meeting that the central bank’s forecast needed to be taken with a “big pinch of salt.”

But, Powell did not issue guidance on when the central bank will begin tapering its bond-buying program.

Zachary Griffiths, senior macro strategist at Wells Fargo Securities, told CNBC’s “Squawk Box Europe” on Thursday that while Treasury yields were still much lower than earlier in the year, his firm believed yields would continue to rise going forward.

He said this would both be driven by the global economic reopening in the recovery from the pandemic and a Fed that is starting to think about tapering asset purchases “at some point down the road.”

By downplaying certain central bank members’ forecasts, Griffiths said Powell looked to be taking “off the gas of the accommodation” peddle and it seemed that he was doing “everything he can to make that as gradual a process as possible.”

In terms of data due out on Thursday, the number of weekly jobless claims filed the week ended June 12, is set to be released at 8:30 a.m. ET.

Auctions are scheduled to be held Thursday for $40 billion of 4-week bills, $40 billion of 8-week bills and $16 billion of 5-year Treasury inflation-protected securities.

— CNBC’s Jeff Cox contributed to this market report.

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