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Bond Report: U.S. Treasury yields edge higher as Fed’s Powell suggests timing for tapering bond purchases

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U.S. Treasury yields finished higher Wednesday as Fed Chairman Jerome Powell outlined more details on the timetable for interest rate hikes, suggesting it would be a while before the central bank pulled away from its accommodative policies.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.630%

rose 1.5 basis points to 1.637%. The 2-year note rate
TMUBMUSD02Y,
0.161%

added 0.4 basis point to 0.163%, while the 30-year bond yield
TMUBMUSD30Y,
2.322%

gained 1.7 basis points to 2.325%.

What’s driving Treasurys?

Federal Reserve Chairman Jerome Powell on Wednesday suggested a tapering of asset purchases would come “well before” any interest-rate increase. Since last year, the Fed has been buying $80 billion in Treasurys and $40 billion in mortgage-backed securities each month.

The comments offered more clarity on the Fed’s thinking on the timetable for rate hikes. Most economists anticipate the Fed to start tapering its asset purchases next year.

Meanwhile the Fed’s Beige Book, a compendium of anecdotes of business conditions collected across the country, showed growth and inflation was picking up slowly. Businesses cited rising input costs from supply shortages and higher commodity prices.

See: Here’s why the bond market shrugged off a surge in U.S. inflation

Other economic data added to the impression of brewing inflationary pressures. The cost of imports surged in March for the fourth month in a row, rising 1.2% in March.

What did market participants say?

“Even if you assume a June discussion on tapering (not a given but being talked about), the earliest tapering would begin is late 2021, but likely beginning of 2022. With the “process” of tapering likely to last, say a year, before discussing rate liftoff. This easily takes into 2023,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities.

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