Analysis of U.S. bond market after Fed meeting
The Federal Reserve put investors on the watch to see how fast U.S. Treasury yields may rise after reiterated its commitment to loose policies that are likely to help further boost economic growth and inflation.
A key issue for both investors and Fed officials, who would rather not have to ride out another bout of bond market volatility, as a growing body of indicators suggests U.S. growth is poised to take off this year. A surge higher in yields would raise borrowing costs for companies and consumers, and could ripple across other asset classes like equities.
The 10-year Treasury yield rose to a high of 1.689% prior to the Fed’s statement on Wednesday, its highest since January 2020, before retreating modestly. The sell-off picked up again early on Thursday, vaulting the yield above 1.74% for the first time since January 2020.
Fears of sooner-than-expected interest rate hikes, tapering of the Fed’s asset purchases, helped in the weeks leading up to the March 16-17 policy meeting to send yields on longer-dated Treasury yields to their highest in a year.
Two-year note yields dropped to 0.125% after the Fed meeting, being sensitive to interest rate policy. Those notes had risen 3.6 basis points to 0.165% on Thursday.
That meant the spread between the two- and 10-year rates widened as much as 160.2 basis points.
Head of International fixed income at NatAlliance Securities, Andrew Brenner, wrote in a note on Thursday that the next big move for benchmark 10-year yields would be 2%.
