10-year Treasury yield touches 1.74% despite Fed reassurances

  • The Fed expected core inflation to hit 2.2% this year, but a long-run expectation of it sticking around 2%.
  • The U.S. central bank also indicated that it didn't plan to hike interest rates through 2023 and that it would continue its program of buying at least $120 billion bonds a month.
  • Quilter Investors portfolio manager Hinesh Patel said that "while no response right now is arguably the only move on offer, whatever Powell does at this juncture, the Fed are taking bond markets to the danger zone."

The 10-year U.S. Treasury yield hit 1.74% on Thursday morning, despite reassurance from the Federal Reserve that it had no plans to hike interest rates anytime soon, nor taper its bond-buying program.

The yield on the benchmark 10-year Treasury note had trimmed some gains to 1.722% by 5:15 a.m. ET. The yield on the 30-year Treasury bond was at 2.483%. Yields move inversely to prices.

Treasurys

After the Fed's two-day policy meeting concluded on Wednesday, the central bank said it sees stronger economic growth than previously estimated, forecasting gross domestic product to rise to 6.5% in 2021. This is up from the 4.2% GDP increase forecast in December.

The Fed also expected core inflation to hit 2.2% this year, but a long-run expectation of it sticking around 2%.

The U.S. central bank also indicated that it didn't plan to hike interest rates through 2023 and that it would continue its program of buying at least $120 billion bonds a month.

Fed Chair Jerome Powell reiterated that the central bank wants to see inflation consistently above its 2% target, and material improvement in the U.S. labor market, before considering changes to rates or its monthly bond purchases.

Quilter Investors portfolio manager Hinesh Patel said on Wednesday following the Fed's policy decision, that "while no response right now is arguably the only move on offer, whatever Powell does at this juncture, the Fed are taking bond markets to the danger zone."

"If they don't do anything the bond market will continue pushing yields higher looking for the Fed to increase or adjust bond-buying while if he does act now then he will be accused of overstimulating and running too hot," he explained.

However, Willem Sels, chief investment officer for private banking and wealth management at HSBC, said that the Fed's message of a gradual normalization of policy meant this was a "very different situation than 2013, where bond tapering caught the market by surprise, leading the real yield to spike quickly and significantly, and causing equities, gold and risk assets to sell off."

There has been some concerns that the recent rise in bond yields and inflation expectations could mean a repeat of the 2013 "taper tantrum." This was when Treasury yields spiked suddenly because of market panic after the Fed said it planned to start tapering its quantitative easing program.

On Thursday, weekly jobless claims data is due out at 8:30 a.m. ET.

Auctions are due to be held Thursday for $40 billion of four-week bills, $40 billion of eight-week bills and $13 billion of 9-year 10-month Treasury Inflation-Protected Securities.

CNBC's Thomas Franck contributed to this report.

Source: Read Full Article