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10-year Treasury yield falls by the most in over a week after Fed’s Beige Book

Long-dated U.S. government debt yields slipped on Wednesday, after an anecdotal gauge of the health of the U.S. economy from the Federal Reserve, the Beige Book, showed business conditions improving only slowly while inflation pressures build.

How Treasurys are performing
  • The 10-year Treasury note TMUBMUSD10Y, 1.626% was yielding 1.591%, down 2.2 basis points at 3 p.m. Eastern Wednesday.
  • The 30-year Treasury TMUBMUSD30Y, 2.303%, known as the long bond, was yielding at 2.280%, down 1.6 basis points.
  • The 2-year Treasury note yield TMUBMUSD02Y, 0.168% was at 0.147%, virtually unchanged from Tuesday’s rate.
Fixed-income market drivers

U.S. Treasury yields slipped slightly further on Wednesday after the Fed’s Beige Book indicated that the economy expanded overall at a “moderate pace.”

The anecdotal account on business conditions in the Fed’s districts indicated that the economy was growing at a faster pace than it was earlier in the year but highlighted labor shortages, with companies reported it difficult to find low-wage hourly workers. In some cases, those shortages led some businesses to reduce their hours of operation.

The Beige Book came after Philadelphia Fed President Patrick Harker said that it was time to start thinking about discussing the time frame for scaling back the Fed’s $120 billion a month asset-purchase program, which has been viewed as an element of the central bank’s easy-money policies during the pandemic.

“I think it is appropriate for us to slowly, carefully move back on our purchases at the appropriate time,” Harker said during a virtual Women in Housing and Finance event. “When that is, that is something we need to start discussing.”

On Tuesday, Fed Gov. Lael Brainard, speaking at the Economic Club of New York this afternoon, said that inflation is likely to be temporary—a persistent refrain among policy makers.

Fixed-income investors also were watching reports that energy giant Saudi Aramco was preparing a bond offering to fund a $75 billion dividend commitment, Bloomberg reported.

The offering could kick off sometime in June and could impact Treasury yields, which tend to be sensitive to major corporate offerings as fixed-income dealers and prospective investors adjust their portfolios.

What rates strategists are saying

“The markets await more clarity in the form of data as we continue a broader reopening,” wrote Gregory Faranello, head of U.S. rates at AmeriVet Securities.

“The theme in the market remains the same: inflation, jobs and demand outpacing supply. Monetary, fiscal and health responses. On the monetary side, clear focus on where the Fed goes from here. Brainard says slow and steady wins the race. Fiscal: a waiting game. And on the health side: US demand in full swing heading toward summer months with consumers armed with cash and ready to go,” he said.

By: Mark DeCambre

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