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Bond Report: 2-year Treasury yield sees biggest fall in 3 months as Powell reaffirms go-slow approach to peeling back easy money

U.S. Treasury yields mostly edge lower on Tuesday after Federal Reserve Chairman Jerome Powell told members of Congress that the central bank would be patient before pulling back from its ultra-easy policy stance. Read More...

U.S. Treasury yields mostly fell on Tuesday, and the 2-year notching its biggest daily rate decline since mid-March, after Federal Reserve Chairman Jerome Powell reiterated that the central bank would be patient before pulling back from its ultra-easy policy stance.

How Treasurys are performing
  • The 10-year Treasury note TMUBMUSD10Y, 1.466% was yielding 1.471%, versus 1.481% on Monday at 3 p.m. Eastern Time.
  • The 30-year Treasury bond rate TMUBMUSD30Y, 2.089% was at 2.105%, compared with 2.103% a day ago. On Monday, the long bond saw its largest yield gain since March 12.
  • The 2-year Treasury note TMUBMUSD02Y, 0.234% was at 0.234%, down 2 basis points and marking the largest one-day drop since March 17.

Yields move in the opposite direction to prices.

Fixed-income drivers

Short-dated rates saw their biggest climb in three months as Powell, in congressional testimony, said the central bank had to be patient and “very humble” about its ability to draw signals out of pandemic-era economic data given “such an unusual setting of reopening the economy.”

Powell’s comments came almost a week since he and the rate-setting Federal Open Market Committee pointed to inflation as rising more intensely and more persistently than was pegged by initial estimates in the economic recovery from COVID.

The Fed boss, however, reiterated the stance that pricing pressures that push the cost of living higher will be transitory, in the view of monetary policy makers.

“Much of this rapid growth reflects the continued bounce back in activity from depressed levels,” Powell said.

“Those are things that we would look to stop going up and ultimately start to decline,” he said, referring to rising prices in everything from used cars to homes.

Powell said that he expects the jobs market to eventually rebound to its pre-pandemic levels as well.

“I strongly suspect that labor supply and job creation will be moving up well over the rest of the year,” the Fed chairman said.

In prepared remarks, Powell said that “the economy has shown sustained improvement.” However, he still pointed to challenges in the labor market.

Cleveland Fed President Loretta Mester, also speaking Tuesday, said she didn’t want to adjust the central bank’s easy monetary policy stance until the labor market made more progress over the summer.

San Francisco Fed President Mary Daly also pointed to the fall as a goal post, saying the economy was getting to the “substantial further progress” benchmark more quickly than she had thought at the start of the year.

Separately, the market digested $60 billion in 2-year notes, which also may have influenced the rise in short-dated yields.

See: Fed will support economy ‘for as long as it takes to complete the recovery,’ Powell says

What strategists are saying

“Day four post FOMC produced the first noticeable decline in 2-yr and 3-yr yields as portfolio mgrs gradually think about valuations rather than panic trade,” wrote Jim Vogel, a rates strategist at FHN Financial.

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