US Treasury bond yields fell Thursday morning as investors digested the Federal Reserve’s heightened inflation expectations and signaled that rate hikes would come sooner than expected.
The benchmark ten-year government bond yield fell less than one basis point to 1.56% at 4 a.m. ET. The yield on the 30-year government bond fell to 2.179%. The returns move inversely to the prices.
After concluding its two-day monetary policy meeting on Wednesday afternoon, the Fed raised its headline inflation forecast to 3.4%, a full percentage point above the March forecast.
However, the post-meeting statement reiterated the Fed’s view that inflationary pressures are “temporary”.
The Fed also hinted that rate hikes could happen as early as 2023 after saying in March that there would be no hikes until at least 2024. The so-called dot plot of the expectations of the individual members indicated two rate hikes in 2023.
Nonetheless, Fed Chairman Jerome Powell said in a press conference after the meeting that the central bank’s forecast should be taken with a “big pinch of salt”.
Powell, however, did not issue any guidance on when the central bank will begin curbing its bond-buying program.
Zachary Griffiths, senior macro strategist at Wells Fargo Securities, told CNBC’s Squawk Box Europe on Thursday that government bond yields are still much lower than they were at the beginning of the year, but his firm believes yields will be would continue to increase in the future.
He said this is being driven by both the global reopening of the economy as the pandemic rebounds and a Fed starting to think about reducing bond purchases “sometime along the way”.
By downplaying the forecasts of certain central bank members, Griffiths said that Powell looked like he was taking the property’s gas and it appeared that he was “doing everything in his power to make this as gradual as possible”.
With respect to dates due Thursday, the number of weekly jobless claims filed in the week ending June 12 will be released at 8:30 a.m. ET.
Auctions for $ 40 billion on 4-week bills, $ 40 billion on 8-week bills and $ 16 billion on inflation-linked 5-year government bonds are scheduled to take place Thursday.
– CNBC’s Jeff Cox contributed to this market report.