Bond Report: 30-year Treasury bond yield approaches 2.25% on inflation fears

United States

U.S. Treasury yields rose early Wednesday as worries around inflationary pressures renewed a selloff in longer-dated government bonds.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 1.390% rose a basis point to 1.374%, while the 2-year note rate TMUBMUSD02Y, 0.128% edged 0.3 basis point down to 0.119%. The 30-year bond yield TMUBMUSD30Y, 2.258% surged 4.4 basis points to 2.243%, around its highest level since January last year. Bond prices move inversely to yields.

What’s driving Treasurys?

Fed Chairman Jerome Powell said on Tuesday in front of Congress that he would clearly communicate when the central bank would consider tapering its asset purchases, pushing out the timetable for a reduction of its bond-buying and potentially the first interest rate increase away from its current range of 0% to 0.25%.

Powell’s remarks initially helped to contain the rise in bond yields on Wednesday, but traders continued to push longer-term rates higher in a recognition that the Fed had less control of bonds with extended maturities, said analysts.

Long-term Treasury rates have risen in risen weeks amid anticipation that inflationary pressures set to materialize later this year, driven by a combination of the reopening of the U.S. economy, pent-up spending by consumers and expectations of further fiscal relief from Washington.

Powell will deliver another round of testimony, this time before a House committee, at 10 a.m. Eastern. Fed Gov. Lael Brainard is scheduled to deliver a guest lecture at Harvard at 10:30 a.m., while Vice Chair Richard Clarida is slated to deliver a speech to the U.S. Chamber of Commerce at 1 p.m.

In U.S. economic data, new home sales for January are due at 10 a.m. ET, and are expected to come in at an annualized pace of 850,000.

What did market participants say?

The recent market action suggested “a small increase in confidence today the Fed anchors short rates for longer than feared last week, but belief growth takes rates progressively higher,” said Jim Vogel, an interest-rate strategist at FHN Financial.