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Bond Report: Treasury yields climb as Fed acknowledges economic gains

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U.S. Treasury yields rose Wednesday as the Federal Reserve’s policy statement reflected an improving U.S. recovery thanks to vaccinations and fiscal support.

What are Treasurys doing?

The 10-year Treasury note yield
BX:TMUBMUSD10Y
rose 2.8 basis points to 1.648%, around its highest level in two months. The 30-year bond yield
BX:TMUBMUSD30Y
added 1.9 basis points to 2.312%, while the 2-year note rate
BX:TMUBMUSD02Y
was up marginally to 0.184%. Bond prices move inversely to yields.

What’s driving Treasurys?

Long-term bond yields rose on Wednesday as the Fed released its policy statement in the afternoon and kept its policy interest rate unchanged at a range between 0 and 0.25%. Investors will now turn their attention to Fed Chairman Jerome Powell’s news conference.

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.

But the Fed largely stuck its dovish stance, suggesting the central bank would remain wary of laying the ground for a tapering of its considerable 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.

What did market participants say?

“We’ll continue to err on the side of the Fed; it’s transitory until it isn’t and the FOMC holds the position to make this distinction. ,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

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