{"id":3495,"date":"2023-10-20T03:57:40","date_gmt":"2023-10-20T03:57:40","guid":{"rendered":"https:\/\/infundpros.com\/markets\/powell-may-have-given-green-light-for-higher-bond-yields-with-10-year-near-5-fed-watcher\/"},"modified":"2023-10-20T03:57:41","modified_gmt":"2023-10-20T03:57:41","slug":"powell-may-have-given-green-light-for-higher-bond-yields-with-10-year-near-5-fed-watcher","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=3495","title":{"rendered":"Powell may have given \u2018green light\u2019 for higher bond yields with 10-year near 5%: Fed watcher"},"content":{"rendered":"
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Federal Reserve Chair Jerome Powell on Thursday offered up reasons for the continued surge in long-term Treasury yields, and may have unintentionally egged on traders to keep pushing them higher, according to a top Fed watcher.<\/p>\n

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Asked about the sharp rise in long-term Treasury yields \u2014 with the 10-year Treasury note on Thursday coming within less than a basis point of the psychologically important 5% threshold, Powell said the rise didn\u2019t appear to be fueled by expectations for higher inflation or further Fed rate hikes.<\/p>\n

\u201cIt\u2019s really happening in term premiums, which is the compensation for holding long-term securities, and not principally a function of the market looking at near term fund rates,\u201d Powell said during the question-and-answer session following his speech to the Economic Club of New York.<\/p>\n

In One Chart: <\/strong>Here\u2019s a chart on one of the biggest factors behind rising yields this week<\/p>\n

That\u2019s the sort of rise that tightens financial conditions, which Powell acknowledged could potentially substitute for further Fed hikes \u201cat the margin,\u201d noted Krishna Guha, head of the global policy and central-bank strategy team at Evercore ISI, in a note.<\/p>\n

But Powell\u2019s comments \u201clacked any urgency to lean against the rise in yields,\u201d Guha said.<\/p>\n

Indeed, Powell described bond market volatility as something the Fed should let \u201cplay out.\u201d <\/p>\n

That set the stage for a renewed steepening of the yield curve, with longer-dated rates rising more than those at the short end, Guha said. The yield on the 10-year Treasury note
\n BX:TMUBMUSD10Y
\n came within less than a basis point of the 5% threshold in afternoon action, before ending North American trade up 8.5 basis points at 4.987% \u2014 its highest since July 20, 2007, according to Dow Jones Market Data.<\/p>\n

\u201cWe do not think Powell intends to green light a further yield move higher, but we worry the bullish growth\/hands off tone on yields may mean this is how his remarks are interpreted,\u201d Guha wrote.<\/p>\n

See: <\/strong>Why stock-market investors are fixated on 5% as 10-year Treasury yield nears key threshold<\/p>\n

The rise in yields was blamed for sinking stocks, with the Dow Jones Industrial Average
\n DJIA
\n ending the day down more than 250 points, or 0.7%, while the S&P 500
\n SPX
\n declined 0.8% and the Nasdaq Composite
\n COMP
\n lost 0.9%.<\/p>\n

Powell, meanwhile, acknowledged other possible yield drivers, including the resilience of the economy, which could lead investors to expect a longer stretch of high rates; concerns about rising fiscal deficits; and the Fed\u2019s unwinding of its balance sheet, a process known as quantitative tightening, or QT. He noted that observers have also cited the changing correlation between bonds and equities, in which more supply shocks make fixed-income a less attractive hedge to equities.<\/p>\n

\u201cSo all of those are possible ideas,\u201d Powell said.<\/p>\n

One possible explanation that Powell rejected had been offered earlier by Minneapolis Fed President Neel Kashkari.<\/p>\n

Kashkari suggested that if the recent move in the 10-year yield was a reflection of a change in expectations regarding monetary policy,\u00a0\u201cthen we might actually need to follow through on their expectations in order to maintain those yields.\u201d<\/p>\n

\u201cIs it just because the market expects us to take further action to tighten monetary policy? That doesn\u2019t seem to be the case,\u201d Powell said.<\/p>\n

\u201cIt doesn\u2019t seem to be principally about expectations of us doing more,\u201d he added. <\/p>\n

\u2014Greg Robb contributed.<\/em><\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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