Treasury revenues are on the rise again – WSJ

Yields, which rise when bond prices fall, have been rising for months, buoyed by expectations of a vaccine and government stimulus that fueled the economic recovery that investors believe could lead to significantly higher inflation and eventually force the Fed to close the short. to raise interest. .

Yields fell on Wednesday after the central bank released its latest policy statement, again showing that officials intend to be patient in raising the Federal Funds’ reference rate as they try to keep inflation above their own for an extended period of time. 2% target.

Shorter-term returns on Treasurys, which are particularly sensitive to the outlook for Fed policy, led to the declines when Fed Chairman Jerome Powell reinforced that message at a press conference.

However, Treasurys yields, maturing in just five years, rose sharply on Thursday, a sign of the severe headwinds facing the market.

Despite the signals from the Fed, many investors believe that the central bank will have to start raising interest rates as early as 2023 to counter an expected rise in inflation. The Fed’s pledge to support the economy now could even lead to faster rate hikes later on, as it could help generate the kind of inflation that has been largely lacking for the past decade, these people argue.

Meanwhile, other factors are also counteracting bonds, including a large increase in Treasury bill supply as the government finances trillions of dollars in coronavirus control spending and uncertainty as to whether the Fed will grant temporary legislative action to major banks that could directly impact on how much they keep in Treasurys in the future.

On Thursday, the market was pressured by a report that the Bank of Japan could allow the 10-year Japanese government bond to trade in a broader range, some analysts said. A strong jobs report in Australia further contributed to bond market weakness during overnight trading.

“My interpretation is that Chairman Powell gave us the green light for reflationary trading yesterday, and there is no dip buying interest. [overnight]Reaffirmed this idea that no one is willing to step into this transaction yet, ”said Ian Lyngen, head of US interest rate strategy at BMO Capital Markets.

Investors and analysts are paying close attention to U.S. Treasury yields as they help set interest rates across the economy. Higher yields generally translate into higher borrowing costs for individuals and businesses, leading some to question whether the Fed could try to stop the trend by increasing its monthly purchases of long-term treasuries.

However, Fed officials have repeatedly suggested that they see no reason to take that step yet, as strong demand for riskier assets such as stocks and corporate bonds has meant that companies still have access to cheap financing.

Write to Sam Goldfarb at [email protected]