The 10-year yield on US Treasuries rose above 1.7% on Thursday, despite reassurance from the Federal Reserve that it did not intend to hike interest rates in the short term, nor to wind down its bond buying program.
The yield on the benchmark 10-year Treasury bill rose 9 basis points to 1.737% by 7:10 a.m. ET. The yield on the 30-year government bond increased by 5 basis points to 2.502%. Revenues move inversely with prices. (1 basis point equals 0.01%).
The 10-year broke above 1.4% earlier in the session, marking its highest level since January 24, 2020, when it came in at 1.762%. This is also the first time that the 30th anniversary has been trading above 2.5% since August 2019.
Following the Fed’s two-day policy meeting on Wednesday, the central bank said it sees stronger economic growth than previously forecast, and forecast gross domestic product to rise to 6.5% in 2021. This is higher than forecast. 4.2% GDP increase in December.
The Fed also expected core inflation to reach 2.2% this year, but in the long run it expected it to remain around 2%. The US central bank also indicated that it had no intention of raising interest rates until 2023 and that it would continue its program of buying at least $ 120 billion in bonds per month.
These projections reinforced the idea that the central bank is willing to let the economy warm for a while to allow the US to recover from the Covid pandemic. Bond investors fear that this means they will allow inflation to rise more than usual, eroding the value of bonds.
Fed Chairman Jerome Powell reiterated that the central bank wants to see inflation consistently above the 2% target and a material improvement in the US labor market before considering changes in interest rates or its monthly bond purchases.
Quilter Investors’ portfolio manager Hinesh Patel said Wednesday after the Fed’s policy decision that “while no response is likely the only move on offer at this point, no matter what Powell is doing at the moment, the Fed is taking bond markets into danger zone. brings. “
“If they don’t act, the bond market will continue to push up interest rates, looking for the Fed to increase or adjust bond buying, while if it acts now it will be accused of overstimulation and getting too hot,” explains he explains.
However, Willem Sels, chief investment officer for 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 than in 2013, when bond tapering took the market by surprise. and the market surprised. real returns are rising rapidly and significantly, selling stocks, gold and risky assets. “
There has been some concern that the recent hike in bond yields and inflation expectations could signal a repeat of the 2013 “winding tantrum”. This was when government bond yields suddenly spiked due to market panic after the Fed said it planned to wind down its quantitative easing program.
Weekly data on jobless claims will be released on Thursday at 8:30 a.m. ET.
Auctions will be held Thursday for $ 40 billion in four-week bills, $ 40 billion in eight-week bills and $ 13 billion in 9-year 10-month inflation-protected treasury bills.
CNBC’s Thomas Franck contributed to this report.