A new surge in bond sales pushed 10-year Treasury yields well above 3% on Thursday, a day after Federal Reserve Chairman Jerome Powell seemed to calm the markets lowering the chances of a big interest rate hike in the coming months.
Treasury bond yields, which rise as bond prices fall, began to rise early in the U.S. trading session and then continued to go, gaining momentum and contributing to a sharp decline in equities that protested earlier in on week.
The move was the latest in a months-long downturn that pulled down a number of other assets, from relatively safe corporate bonds to speculative investments such as cryptocurrencies and stocks of unprofitable technology companies.
The growth in the profitability of treasuries, which is largely influenced by expectations about the future policy of the Fed, push borrowing costs across the economy. They can also damage demand for riskier stocks by reducing the value investors invest in their future profits.
On Wednesday, investors received a rare reprieve when Mr Powell helped raise both stock and bond prices, saying officials did not consider a major rate hike by three-quarters of a percentage point after the central bank just raised rates by one and a half percent.
However, on Thursday, some investors and analysts stressed that despite Mr. Powell’s comments, inflation remains very hot, and the Fed is still expected to raise its base rate on federal funds by half a percentage point on each of the next two policy meetings. . Several said investors are now even more concerned that the central bank will not do enough in the short term to control inflation and will therefore have to raise rates even higher in the long run.
Investors “call the Fed a bluff,” said Priya Misra, head of global betting strategy at TD Securities in New York. In fact, she said they “say inflation is a problem [the] The Fed will need to rise more and kill the economy, ”she added that she was not sure why sales were so concentrated on Thursday, in particular.
It already was 2022 is a very difficult year for bond investors. The Bloomberg U.S. aggregate bond index – mostly U.S. Treasury bonds, high-rated corporate bonds and mortgage-backed securities – returned to minus 9.4% as of Wednesday.
On Thursday, the yield on benchmark 10-year U.S. Treasury bonds stood at 3.066%, the highest since November 2018, compared to 2.914% on Wednesday. Yields on 30-year bonds rose even more, recording the biggest one-day growth in more than two years to 3.159%.
As the bond crash deepens, Mohit Bajaj, director of ETF trading solutions at WallachBeth Capital, said he is watching money flow from long-term corporate bonds and unnecessary bonds into less risky forms of debt. The
decreased by 2.7%, the worst one-day decline since the market sell-off caused by the March 19, 2020 pandemic. The IShares High Yield Bond Factor ETF fell 1.9%, the worst one-day decline since June 11, 2020.
Some investors have warned not to read too much about the jump in profitability on Thursday. Earlier in the day, several analysts said the increase in Treasury bond yields could be at least partly due to a large batch of new corporate bond sales that were announced this morning. Large, sudden changes in bond prices are also common exacerbated by various technical factorsincluding hedge funds are forced to close rates if yields cross certain thresholds.
In the coming days, treasury trading is likely to be more based on economic data, with data released on Friday and a consumer price index on Wednesday.
Treasury bond yields largely reflect the average rate on federal funds that investors expect over the life of that bond. Currently, interest rate derivatives show that investors expect the Fed’s rate to reach 3.5% next year from the current range of 0.75% to 1%.
However, this forecast masks a number of considerations – many investors still hope that inflation may slow enough to keep short-term rates below 3%, while others suggest that they may have to 5%.
If the last two days have proven anything, it is that investors are currently uncertain and unsure of holding “one position for any length of time,” said Christopher Sullivan, the organization’s chief investment officer. United Nations.
Such mood swings, he added, should be “a feature of the market for a while.”
– Akane Otani contributed to this article.
Copyright © 2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
This article is first published on Source link