Treasury yields maintain regular after Brainard says combating inflation is Fed’s most necessary process for foreseeable future
US Treasury yields were little changed on Thursday afternoon after US Federal Reserve Governor Lael Brainard said bringing inflation down will be the central bank’s most important task for the foreseeable future.
Data released earlier in the day showed that US weekly jobless claims rose to their highest level since mid-November, while US wholesale prices rose just 0.2% last month but rose by 0.2% over the past year 9.7% have increased. Meanwhile, the spread between 2-year and 10-year yields narrowed to 82 basis points, while the spread between 5-year and 30-year yields narrowed to 58 basis points.
What are returns doing?
The 10-year Treasury note TMUBMUSD10Y, 1.723% yields 1.723%, compared to 1.724% as of 3:00 p.m. ET on Wednesday. Debt yields fall when prices rise.
The 2-year Treasury note TMUBMUSD02Y, 0.890%, was up 0.895% from 0.905% a day ago. Wednesday’s level was the highest since February 27, 2020.
30-year Treasury bond TMUBMUSD30Y, 2.068% returns 2.068% versus 2.071% on Wednesday afternoon.
What moves the market?
Yields across maturities have risen sharply early in the year as investors brace for a period of above-average inflation and a US Federal Reserve looking to tighten monetary policy to combat it.
During her confirmation hearing to take second place central bank, Brainard said, “Inflation is too high and working people across the country are worried about how far their paychecks will go.” Getting inflation back to 2% while maintaining an inclusive recovery,” she said.
Read: Lael Brainard says inflation is ‘too high’ The Fed will work to bring them down.
Some analysts are beginning to bet that yields will be significantly higher in late 2022, with the 10-year hitting 2%, especially if price pressures require more than the three rate hikes that market-based forecasts show. On Wednesday, St. Louis Fed Chairman James Bullard said four rate hikes were likely this year.
Data released on Thursday showed US wholesale prices rose nearly 0.2% in December, the smallest increase in 13 months. The rise in the PPI fell below the 0.4% forecast by economists polled by the Wall Street Journal. Meanwhile, wholesale price inflation slipped to 9.7% last year from 9.8% in the previous month. It was the first decline in the annual rate since the pandemic began.
The PPI report came a day after December’s CPI headline showed that the year-on-year inflation rate rose to a near 40-year high of 7%, suggesting higher prices are likely to continue into 2022.
Meanwhile, initial jobless claims rose 23,000 to 230,000 in the week ended Jan. 8, the highest since mid-November. Economists polled by the Wall Street Journal had estimated the number of new applications would drop to 200,000. Although jobless claims were higher than estimated, they still pointed to a tight labor market.
Looking ahead, investors will be watching for a $22 billion 30-year bond auction at 1:00 p.m. ET that could affect Treasury trading.
What Analysts Say
Although the PPI has risen less than expected, “we believe investors have reason to remain heavily focused on factors likely to keep inflation high in the coming months,” said Greg Bassuk, chief executive of AXS Investments.
Although CPI data “on Wednesday briefly assuaged investor hopes that inflationary pressures might be strengthening, we caution investors that one-month data is not a market cycle and premature conclusions on inflation trajectories based on one-month readings will lead to misalignment could investor portfolios,” Bassuk wrote in an email.