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Bond Report: Most Treasury yields hold steady day after Powell sticks with a hawkish tone

Treasury yields were flat to slightly higher early Wednesday, after rising the previous session following hawkish remarks by Federal Reserve Chairman Jerome Powell.

What Treasury yields are doing

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.986%

rose to 2.976%, up from 2.969% at 3 p.m. Eastern on Tuesday

The 2-year Treasury note yield
TMUBMUSD02Y,
2.711%

was at 2.699% versus 2.696% on Tuesday afternoon.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.185%

was 3.173%, up from 3.161% late Tuesday.

What’s driving the market

Yields rose Tuesday after U.S. April retail sales data came in slightly below expectations but remained solid, while Powell, speaking at a Wall Street Journal event, said the Fed would keep raising interest rates until there was “clear and convincing evidence” that inflation was coming down. Powell said that, if necessary, the Fed wouldn’t hesitate to push rates past “broadly understood levels of neutral” to bring down inflation. The neutral rate is the level at which policy neither boosts nor slows economic growth.

Powell reiterated that half a percentage point interest rate hike at both the June and July meeting remained the baseline case. The Fed chief said there may be some “pain” ahead in terms of slower growth or higher unemployment but that there remained “plausible paths” to a “softish” landing for the economy.

Data ahead on Wednesday include U.S. April housing starts and building permits at 8:30 a.m.

What analysts say

While the Fed chief sees a potential pathway to bringing down inflation without a recession, “our sense is that Powell is being a bit more honest or realistic about the possibility that tightening might have to go so far that it tips the economy over the edge,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note.

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