By Vivien Lou Chen and Jamie Chisholm
US bond yields were mixed on Tuesday amid mixed trading conditions after data showed consumer confidence rose for the first time in four months and as investors absorbed the Federal Reserve’s recent hawkish comments.
What’s happening
What moves the markets
Buyers cautiously returned to most Treasuries, pushing 5-30-year yields slightly lower after hawkish comments from Federal Reserve Chair Jay Powell last Friday pushed the 2-year yield above 3.4 % – one of the highest levels since the Great Financial Crisis began in 2007. Choppy summer trading conditions continued to plague the US rates market as economic data came in, according to Ian Lyngen, strategist at BMO Capital Markets The CoreLogic Case-Shiller 20-City Index was up 18.6% year-on-year from 20.5% the previous month. Meanwhile, the Conference Board consumer confidence index jumped to 103.2 in August, beating expectations.
Markets are pricing in a 70.5% chance that the Fed will hike rates another 75 basis points to a range of 3% to 3.25% at its September 20-21 meeting. The central bank is expected to raise its interest rate target to at least 3.5% to 3.75% by December based on futures markets. The spread between 10-year and 2-year US Treasury yields was around minus 36 basis points on Tuesday, a reversal that tends to signal a recession. In fact, UBS economists and strategists said they now see a 60% chance the US economy will contract within a year.
What Analysts Say
“In brief, clear and direct statements, Chairman Powell reiterated that inflation remains too high and that the Fed will do whatever it takes to bring it down,” said Tiffany Wilding, North American economist at PIMCO. ”
For central bankers, there is “greater uncertainty about the effectiveness of current policy tools to bring inflation back down, while at the same time central banks need to act decisively to ensure inflation expectations are well anchored to their long-term targets.” she wrote in an email. Overall, the pre-pandemic era of sluggish growth, low inflation and sluggish monetary policy “is now firmly behind us, and what lies ahead is a more volatile and uncertain path that is fraught with pitfalls for even the most seasoned central banker, and the market environment market participants should reckon with.” that financial conditions, higher risk premia and greater macro volatility translate into higher costs and lower risk-adjusted returns,” Wilding said.
-Vivien Lou Chen
(ENDS) Dow Jones Newswires
8/30/22 1013ET
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