Treasuries Finish Volatile Session Roughly Flat

After turning lower over the course of the previous session, treasuries saw substantial volatility during trading on Tuesday.

Bond prices showed wild swings back and forth across the unchanged line before closing roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 3.975 percent.

The volatility on the day came as traders reacted to Federal Reserve Chair Jerome Powell’s highly anticipated semiannual monetary policy testimony before the Senate Banking Committee.

Citing stubbornly elevated inflation and stronger than expected economic data, Powell told lawmakers the “ultimate level of interest rates is likely to be higher than previously anticipated.”

Powell also said the Fed would be prepared to reaccelerate the pace of rate hikes if the totality of incoming data were to indicate that faster tightening is warranted.

Additionally, the Fed chief reiterated the central bank will likely need to maintain a restrictive stance of monetary policy for “some time” in order to restore price stability.

“The historical record cautions strongly against prematurely loosening policy,” Powell said. “We will stay the course until the job is done.”

The Fed’s next monetary policy meeting is scheduled for March 21-22, with CME Group’s FedWatch Tool currently indicating a 69.0 percent chance of 50 basis point rate increase and a 31.0 percent chance of 25 basis point rate hike.

“The upshot is that not only are interest rates set to rise higher than we previously anticipated, but there is a lot less scope for rate cuts later this year than we had originally thought,” Andrew Hunter, Deputy Chief U.S. Economist at Capital Economics, said in response to Powell’s testimony.

He added, “Nevertheless, with most leading indicators still flashing red and the impact of the huge monetary tightening already seen still feeding through, we still believe the real economy and labor market are likely to be weaker this year than the Fed expects, with a recession the most likely outcome.”

Powell’s second day of testimony on Capitol Hill may attract some attention on Wednesday, while traders are also likely to keep an eye on reports on private sector employment and job openings as well as the Fed’s Beige Book.

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