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U.S. Treasury Yields Jump, 30-year at Highest Since 2019

EconomyMar 18, 2021 13:15
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Dhirendra Tripathi

Investing.com – The yields on U.S. Treasury bonds jumped overnight despite the Federal Reserve’s assertion Wednesday that an interest rate hike is not anywhere on the horizon.

The United States 10-Year touched a 14-month high of 1.75% while that on the United States 30-Year bond hit 2.51%. The 30-year yield is its highest since August 2019.

Market makers are holding on to their sixth sense, believing that a tightening will come earlier than the Fed's words imply. The United States 5-Year note yield, more sensitive to expectations of short-term interest rate changes, has risen to 0.87% from around 0.35% at the start of the year.

Concluding its two-day meeting, the Federal Reserve on Wednesday revised its growth forecast for the economy for 2021. It now sees the GDP growing 6.5% in the year, a healthy 230 basis points higher from the 4.2% forecast in December.

One basis point is one-hundredth of a percentage point.

“Markets have been testing the Fed to see how high they can take longer-term US interest rates. Yesterday's FOMC press conference was the equivalent of June 2013, when the FOMC downplayed rising longer-term yields and supercharged the taper tantrum. This is what's happening now,” Robin Brooks, chief economist at Institute of International Finance, tweeted.

Brooks said the Fed’s message is that it is on hold even as growth and inflation rise. “But US longer-term yields will continue to go higher after today, which will put pressure on EM FX again...,” Brooks tweeted.

Bond market stakeholders interpreted the Fed as saying it would let the economy heat up until the 10 million jobs lost due to Covid-19 are restored. The Fed’s comfort with a higher inflation might just be irking the traders since it erodes the value of their bonds. Yields move inversely to prices.

The boom in the economy comes as trillions of dollars have been pumped in to limit Covid-19's damage to it, and the Fed feels no need to take the foot off the pedal yet.

U.S. Treasury Yields Jump, 30-year at Highest Since 2019
 

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