(Updates pricing, adds quotes, and recasts with Powell’s comments.)
Karen Brettell contributed to this article.
Reuters, NEW YORK, July 14 – US Treasury yields dipped on Wednesday after Federal Reserve Chair Jerome Powell maintained his belief that high inflation is only temporary, despite data showing that price pressures grew more than expected for the second day in a row in June.
Powell said in a hearing before the US House of Representatives Financial Services Committee that the US monetary policy will provide “powerful support” to the economy “until the recovery is complete,” and that any move to reduce support for the economy, such as slowing the US central bank’s $120 billion in monthly bond purchases, is “still a ways off.”
Powell addressed worries that inflation created new threats by noting that price increases were faster than projected but that they will “moderate,” implying that he did not see the need to accelerate the transition to post-pandemic policy.
“A considerable portion of the inflation statistics comes from items that Powell has stated should be temporary. And, despite the fact that there was expectation of an increase in inflation, and that this is larger than that increase, I still believe Powell would wait it out, and I believe he reaffirmed that today “Lou Brien, a market strategist with DRW Trading in Chicago, echoed this sentiment.
Powell’s remarks come as statistics revealed that producer prices in the United States quickened in June, resulting in the highest annual gain in for over 10-and-a-half years.
Consumer prices in the United States grew by the highest in 13 years in June, owing to supply restrictions and a further rise in the costs of travel-related services from pandemic-low levels as the economic recovery gained traction, according to data released on Tuesday.
On Wednesday, benchmark 10-year rates decreased six basis points to 1.356 percent.
The spread between two-year and ten-year notes has flattened to 112 basis points.
Breakeven rates on five-year Treasury Inflation-Protected Securities (TIPS) fell to 2.56 percent from 2.60 percent earlier on Wednesday, indicating a small drop in inflation forecasts.
Investors believe that much of the growth boost from company reopenings has already been seen, and that any reduction in the Fed’s exceptional stimulus will result in weaker growth. Long-dated Treasury yields have fallen and the yield curve has flattened.
“The long-end is saying…that inflation will not endure, and that growth will return to its previous tendency in the long run,” Brien said.
At its August Jackson Hole economic symposium, the Fed is largely expected to announce that it will reduce bond purchases, though reductions are not expected to begin until the end of the year or early next year.
Powell will appear in front of legislators for a second day on Thursday.
Wednesday, July 14th, 3:00 p.m. in New York / 1900 p.m. in GMT
Price Current Net Yield Change in Percentage (bps)
0.05 0.0507 0.000 0.05 0.0507 0.000 0.05 0.0507 0.000 0.05 0.0507 0.000
0.05 0.0507 0.000 0.05 0.0507 0.000 0.05 0.0507 0.000 0.05 0.0507 0.000
Note 99-204/256 with a two-year maturity -0.026 0.229 -0.026 0.229 -0.026 0.229
Note 99-208/256 with a three-year maturity -0.032 (0.438)
Note with a five-year maturity of 100-94/256 0.049 -0.7993 -0.7993 -0.7993 -0.7
Note with a seven-year maturity of 100-244/256 -1.1073 (-0.059)
102-120/256-year note 102-120/256-year note 102-120/256-year 1.3559 -0.059 -0.059 -0.059 -0.059 –
105-148/256 105-148/256 105-148/256 105-148/256 105- -0.052 (1.9107)
108-172/256 108-172/256 108-172/256 108-172/256 108-17 1.9882 -0.049 -0.049 -0.049 -0.049 –
SWAP DOLLAR SPREADS
Finally (bps) Change in the net (bps)
7.75 0.00 spread on a two-year dollar swap in the United States
9.75 0.00 spread on a three-year dollar swap in the United States
The spread on a 5-year dollar swap in the United States is 8.25 to 0.50.
-0.75 0.00 spread on a 10-year dollar swap in the United States
-27.50 0.00 spread on a 30-year dollar swap in the United States (Karen Brettell contributed reporting; Andrea Ricci and Nick Zieminski edited the piece.)/n
