U.S. Treasury bond yields rose Monday as investors likely sold government bonds to buy new corporate bonds, while Federal Reserve officials highlighted uncertainty over the bank’s capacity central to reduce interest rates if inflation remains low.
Investors had been expecting a period of consolidation in Treasuries after last month’s decline in consumer prices reinforced expectations that the Federal Reserve could cut interest rates twice this year.
Yields, which move inversely to prices, have mostly fallen in recent weeks on signs of a slowdown in the economy, partly reversing gains in previous months on fears of a recovery of inflation.
Monday’s yield hikes were a sign that the market was “trying to find some balance” after the recent rise in bonds, said Danny Zaid, a portfolio manager at TwentyFour Asset Management, who expects Treasuries to rise be less volatile over the coming weeks.
The ICE BofA MOVE Index, which measures the expected volatility of U.S. Treasury bonds, is at its lowest level since the end of March.
“It’s very quiet…I think the sales probably have more to do with the new issues announced this morning,” said Tony Farren, managing director at Mischler Financial Group, referring to a series of new sales of corporate bonds announced Monday.
In the absence of US economic data on Monday and Tuesday, remarks from Fed officials took center stage ahead of Wednesday’s release of minutes from the latest Fed meeting, which could provide more insight. information on the views of the central bank regarding the development of interest rates.
Atlanta Fed President Raphael Bostic said in an interview Monday that “it will take some time” before the Fed is satisfied that inflation is on track to return to target 2% from the central bank.
Fed Vice Chairman for Supervision Michael Barr struck a similar tone, saying inflation data in the early months of this year has been disappointing, making the central bank not does not have the evidence it needs to ease its monetary policy.
“We will have to give our restrictive policy a little more time to continue its work,” Mr. Barr said.
Separately, Phillip Jefferson, vice chairman of the Fed, said he was cautiously optimistic about the central bank’s ability to continue fighting inflation while allowing the economy to grow.
Futures traders tied to the Fed’s key rate on Monday forecast a total of about 42 basis points of interest rate cuts this year, down from more than 50 basis points following last week’s data showing that U.S. consumer price inflation slowed in April.
Benchmark 10-year yields were last seen at 4.437%, almost two basis points higher than Friday. Two-year yields, which tend to more closely reflect monetary policy expectations, were at 4.837%, up about a basis point.
