Yields rise as Fed’s Powell stays hawkish


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NEW YORK — U.S. Treasury yields rose on

Thursday after Federal Reserve Chairman Jerome Powell reiterated

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that the U.S. central bank’s priority is to tackle inflation,

before highly anticipated consumer price data is due next week.

Powell said that the Fed is “strongly committed” to fighting

inflation, but there remains hope it can be done without the

“very high social costs” involved in prior campaigns to control

surging prices.

“It was consistent with his Jackson Hole remarks – the need

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to hike rates more to get inflation lower. That’s really what

the crux of the message was,” said Gennadiy Goldberg, an

interest rate strategist at TD Securities in New York.

Chicago Fed President Charles Evans also said on Thursday

that getting high inflation down is “job one,” and to do so the

Fed “could very well” raise interest rates by another 75 basis

points this month.

Fed officials are heading into a blackout period before

their Sept. 20-21 meeting, when the Fed is expected to raise

rates by another 75 basis points, increasing the fed funds rate

to 3.0% to 3.25%.

Consumer price inflation data for August due on Tuesday will

come after the blackout period begins.

Data on Thursday showed that employment remains strong. The

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number of Americans filing new claims for unemployment benefits

fell last week to a three-month low.

Concerns that central banks will remain hawkish and

inflation will remain persistently high if energy prices rise

heading into winter has sent government bond yields higher

globally in recent weeks.

The European Central Bank on Thursday raised its key

interest rates by an unprecedented 75 basis points and signaled

further hikes, prioritizing the fight against inflation even as

the bloc’s economy is heading for a likely winter recession.

Yields had dipped earlier on Thursday as oil prices fell, as

China’s extension of lockdown measures to curb the COVID-19

spread exacerbated concerns that a slowdown in economic activity

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globally would hit fuel demand.

A surging U.S. currency against the Japanese yen, euro and

other currencies has also added demand for U.S. bonds as

investors seek a place to park their cash in dollar-denominated

assets.

Benchmark 10-year note yields rose three basis

points to 3.292%. They have risen from a four-month low of

2.516% on Aug. 2, but are holding below the 11-year high of

3.498% reached on June 14.

Two-year yields increased four basis points to

3.491%, below the 3.551% level hit last Thursday, which was the

highest since November 2007.

The yield curve between two-year and 10-year notes

remained inverted at minus 20 basis points, an

indicator that a recession is likely in the next one to two

years. The inversion is less severe, however, than the minus 56

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basis points level reached on Aug. 10.

Inflation expectations also fell. Breakeven rates on

five-year Treasury Inflation-Protected Securities (TIPS)

reached a two-month low of 2.50%, indicating

expectations of 2.50% inflation per year for the next five

years.

September 8 Thursday 3:00PM New York / 1900 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 2.965 3.0286 -0.018

Six-month bills 3.3625 3.4678 0.023

Two-year note 99-139/256 3.4911 0.044

Three-year note 98-216/256 3.5431 0.049

Five-year note 98-196/256 3.3966 0.037

Seven-year note 98-112/256 3.3782 0.033

10-year note 95-112/256 3.2921 0.027

20-year bond 95-140/256 3.6925 0.034

30-year bond 91-200/256 3.442 0.037

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 36.00 -1.25

spread

U.S. 3-year dollar swap 11.00 -2.00

spread

U.S. 5-year dollar swap 5.75 -0.75

spread

U.S. 10-year dollar swap 7.00 -0.50

spread

U.S. 30-year dollar swap -32.25 0.00

spread

(Reporting by Karen Brettell; editing by Jonathan Oatis and

Nick Zieminski)

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