US 10-year Treasury bond yields fell from their previous highs on Wednesday after the Federal Reserve and Chairman Jerome Powell warned that the central bank expected strong economic growth this year but had no plans to raise its key rate.
The benchmark 10-year Treasury note yield rose slightly to 1.63% at 3:10 p.m. ET. The yield on the 30-year government bond rose by around 4 basis points to 2.428%. The returns move in reverse to the prices (1 basis point corresponds to 0.01%).
The 10-year-old reached a high of 1.689% at the beginning of the meeting, the highest level since January 24, 2020. The 30-year-old also reached the highest level since the beginning of last year. The 10-year trade was trading nearly 1.66% when the Fed’s announcement was released at 2 p.m., and rates fell as Fed chairman Jerome Powell reiterated a dovish stance on the central bank during his afternoon press conference.
The Federal Open Market Committee agreed to keep its policy rate near zero and continue its asset purchase program for at least $ 120 billion per month in bonds. The central bank said it didn’t expect to hike the interest rate until 2023.
The Fed also anticipated GDP growth of 6.5% this year and core inflation of 2.2%. Both measures should then cool off in 2022. These projections have been combined with the expected course of the benchmark interest rate, showing that the central bank is sticking to its plan to let the economy run hot while the US recovers from the pandemic.
“Basically, the reflation trade remains intact,” said Jim Caron, director of global macro strategy at Morgan Stanley Investment Management. “There was no signal of an early rate hike … The important thing is that the Fed does not see any significant rise in inflation above 2% throughout its forecast horizon to 2023. Most people believe that the threshold for rate hikes is 2.5%, and so is the Fed. ” say we’re under. “
Short-term rates, including the 2-year government bond yield, were slightly lower that day.
10-year government bond yields have risen rapidly recently on concerns about possible inflation growth as economies reopen and recover from the coronavirus pandemic. The 10 year return started the year at 0.9%.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, told CNBC’s “Squawk Box Europe” on Wednesday morning that the rate of return was “still close to zero in real terms”.
Shepherdson believed that while Powell would ease some of the market’s inflation fears again, he suggested that the Fed chair not speak in Wednesday’s news conference about curtailing his bond-buying program.
He said this is because “as soon as the Fed talks about a rejuvenation, yields will skyrocket immediately because the markets do – they give the markets an inch and they take in a yard – especially on government bonds right now . “
“I think the Fed wants to dampen this conversation as much as possible until they can’t,” he added.
Shepherdson pointed out that this lack of guidance from the Fed as to when policy changes might occur is “somehow justified because that recovery is still a forecast”.
In terms of economic data, the Commerce Department said Wednesday morning that housing starts fell sharply in February, a month marked by storms across much of the United States.
On the Wednesday before the Fed’s announcement, an auction for 119-day bills valued at $ 35 billion was held.
– CNBC’s Maggie Fitzgerald, Patti Domm and Jeff Cox contributed to this report.