Treasuries Show Notable Rebound In Reaction To Powell Comments

After coming under pressure over the course of the previous session, treasuries moved back to the upside during trading on Wednesday.

Bond priced moved notably higher early in the session and remained firmly positive throughout the day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 5.9 basis points to 1.356 percent.

The initial strength among treasuries came in reaction to Federal Reserve Chair Jerome Powell’s prepared remarks before the House Financial Services Committee.

Powell reiterated the belief that “substantial further progress” towards the Fed’s goals of maximum employment and price stability is “still a ways off,” suggesting the central bank is not likely to begin tightening monetary policy anytime soon.

The Fed chief also once again stressed that the Fed will provide “advance notice” before announcing any changes to its asset purchase program.

Powell acknowledged that inflation has increased notably and will likely remain elevated in coming months but predicted inflation would moderate as the effects of the production bottlenecks unwind.

The comments about inflation came as the Labor Department released a report showing producer prices jumped by much more than expected in the month of June.

The Labor Department said its producer price index for final demand surged up by 1.0 percent in June after climbing by 0.8 percent in May. Economists had expected producer prices to rise by 0.6 percent.

The report also showed the annual rate of producer price growth accelerated to 7.3 percent in June from 6.6 percent in May, reaching the highest level since 12-month data were first calculated in November of 2010.

Later in the day, the Federal Reserve released its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.

The Beige Book noted the U.S. economy strengthened further from late May to early July, with the pace of growth described as moderate to robust.

The report described pricing pressures as broad-based, with more acute pricing pressures seen in the hospitality sector, as the reopening of hotels and restaurants confronted limited supplies of materials and workers.

“While some contacts felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months,” the Fed said.

The report also said three-quarters of the Fed districts reported either slight or modest job gains, while the remainder reported moderate or strong increases in employment.

Looking ahead, the Beige Book said the outlook for demand continued to improve but noted many contacts expressed uncertainty or pessimism over the easing of supply constraints.

Trading on Thursday may be impacted by reaction to the latest batch of economic news, including reports on weekly jobless claims, regional manufacturing activity and industrial production.

Powell is also scheduled to testify before the Senate Banking Committee, where he is likely to reiterate his prepared remarks.

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