Bond Report: 10-year Treasury yield slides to two-week low as Fed’s Powell looks past inflation worries


U.S. Treasury yields edged lower on Thursday, consolidating a bond-market rally that has pulled yields for long-dated government bonds down again after a rise to pre-pandemic levels in the first quarter this year.

Fed Chairman Jerome Powell on Thursday again suggested the threat of inflation this year that has rattled bond buyers may not persist.

What are Treasurys doing?

The 10-year Treasury note yield

was down 2.1 basis points to 1.632%, its lowest since March 25, while the 2-year note

was down 0.2 basis point to 0.149%. The 30-year bond yield

fell 1.4 basis points to 2.322%. Bond prices move inversely to yields.

What’s driving Treasurys?

Bonds have seen a bid throughout this week, extending a multisession rally that has pulled the 10-year Treasury yield down from its recent high of 1.77%.

Some analysts have suggested the government debt market may be self-correcting, after pricing in an accelerated timetable for Fed interest rate hikes, contrary to the central bank’s own forecast.

Fed Chairman Jerome Powell again said Thursday that the rise in inflation this year was likely to prove temporary in comments at the annual spring meetings of the IMF and World Bank in Washington, following the release of the minutes from the Fed’s latest monetary policy meeting on Wednesday. His comments showed senior Fed officials remained doubtful that a rise in inflation would persist beyond this year.

The Fed minutes showed that it would be “some time” before the Fed started tapering its asset purchases, a decision that would hinge on the realization of substantial further progress towards the Fed’s inflation and employment goals.

In U.S. economic data due Thursday, weekly initial jobless benefit claims came in at 744,000, down from 728,000, moving higher for a second straight week.

What did market participants say?

“Rates markets have been trading more supported over recent sessions. Whether this is a reflection of deeper concerns such as surrounding the role of the AstraZeneca vaccine on the path towards herd immunity or just a post Easter hangover in a shortened week is difficult to say,” said Padhraic Garvey, regional head of research for Americas at ING, adding he still saw the path of yields as heading higher.

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