Treasury yields were dropping sharply Tuesday following dovish commentary from a Federal Reserve official.
Atlanta Fed President Raphael Bostic said Tuesday that he does not see the economy hitting a recession. More importantly, he does not think it’s necessary for the Federal Reserve to increase interest rates again. The comments follow dovish remarks Monday from Fed Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan.
The benchmark
10-year Treasury yield
fell from 4.8% to 4.64%, and was on pace for its largest one-day decline since March 17, according to Dow Jones Market Data.
The two-year note yield
dipped to just below 5%. The
30-year bond yield
fell from 4.97% to 4.834%.
Bond yields are a reflection of how markets see interest rates moving in the future. Yields have been lower on longer-term bonds than shorter-term ones since July last year, but the gap has recently narrowed on expectations of rates staying higher for longer.
Also weighing on yields Tuesday was the attack in Israel over the weekend by Palestinian militant group Hamas. U.S. bonds are a safe haven for investors in periods of uncertainty. The bond market was closed for trading Monday for the Columbus Day holiday.
Further comments from Fed officials throughout the week and incoming inflation data will have a continued impact on yields. What happens next will also depend in part on whether the renewed violence in the Middle East is seen as bad for the economy, which would imply lower yields, or as a fresh driver of inflation, which could keep yields higher.
For now, it’s probably too soon to tell.
Write to Angela Palumbo at [email protected] and Brian Swint at [email protected]
Read the full article here