10-year Treasury yield slides after Fed’s Brainard says she is watching bond-market moves

U.S. Treasury yields fell slightly Tuesday as one senior Federal Reserve official suggested the central bank was closely eyeing last week’s bond-market volatility.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 1.549% fell 3.1 basis points to 1.413%, while the 2-year note rate TMUBMUSD02Y, 0.144% was flat at 0.121%. The 30-year bond yield TMUBMUSD30Y, 2.315% edged 0.5 basis point lower to 2.214%.

What’s driving Treasurys?

Bond buyers looked for more explicit pushback from the U.S. central bank on higher yields in government debt markets. Until now, senior Fed officials have stated they would overlook the recent rise in bond yields, but Fed Gov. Lael Brainard on Tuesday showed one of the first signs the Fed might be uncomfortable with the prospect of higher yields.

Fed Gov. Lael Brainard said Tuesday “some of those moves and the speed of the moves caught my eye. I would be concerned if I saw disorderly conditions or persistent tightening in financial conditions that could slow progress toward our goals.”

Still, Brainard didn’t expect the rise in inflation expectations responsible for last week’s bond-market selloff to dissipate.

With no U.S. economic data on Tuesday, investors largely sat on the sidelines, awaiting the official employment Labor Department report on Friday which is expected to show the U.S. economy adding 218,000 jobs.

The Institute for Supply Management’s U.S. manufacturing report for February on Monday showed factory activity was picking up pace, but it also noted inflation pressures were building up as businesses grappled with pandemic-related supply constraints.

Meanwhile, concerns about bubbles and overvalued parts of global equities markets were a source of concern for Chinese regulators.

Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission and Party secretary of the central bank, at a briefing in Beijing warned that stock values were disconnected with economic fundamentals in the U.S. and Europe, Bloomberg News and Reuters reported.

What did market participants say?

“Members of the FOMC are showing up in public, giving a little bit more guidance,” said Juha Seppala, director of macro asset allocation strategy at UBS Asset Management, in an interview.

But he noted market participants were demanding more details on when the central bank will tighten monetary policy, something which the Fed would be reluctant to grant.

By: Sunny Oh