US Treasury yields were largely flat in Friday’s trade ahead of Federal Reserve Chair Kevin Warsh’s address at Jackson Hole, with traders looking for greater clarity on his economic outlook and strategy for bringing inflation back to target.
The 30-year Treasury yield edged up 2 basis points to 5.21%, though it remained down 8 basis points for the week. It briefly topped 5.3% last week for the first time since 2007.
Meanwhile, the benchmark 10-year US Treasury yield was up 2 basis points at 4.69%, while the yield on the 2-year Treasury note was less than 1 basis point higher at 4.234%.
Treasury yields also found support from a hotter-than-expected US inflation reading this week, which strengthened expectations for a Fed rate increase before year-end, with the probability of a hike by December remaining above 70%.
Ahead of the symposium, Kansas City Fed President Jeffrey Schmid said the current level of central bank rates is not providing sufficient restraint to the economy, suggesting that he still favours raising rates to bring inflation back to the Fed’s 2% target.
Meanwhile, fears over a potential US debt crisis, following the US Treasury’s plans to double its planned purchases of longer-term government debt, have weakened the US dollar, which remained below the 100 mark. Still, the greenback was on track to end the week slightly higher.
Warsh’s speech in focus
Warsh’s address, scheduled for 10 AM New York time, is shaping up as a crucial moment for markets, as doubts about his commitment to taming inflation have helped push up long-term yields. A divided policy committee and the Treasury’s bond market intervention are further complicating the backdrop.
Three Fed officials have already warned about sticky inflation, but Warsh has so far resisted providing forward guidance on the path of interest rates.
The speech is expected to be more significant for foreign-exchange, gold and bond markets than for equities, said Ulrich Urbahn at Berenberg. History suggests a similar response, with the S&P 500 gaining just 0.4% on average in the week following the gathering, according to data compiled by Bloomberg.
Warsh’s first few months as chair have been challenging. Longer-dated Treasury yields have risen since the Fed’s July meeting, which some investors have attributed to a lack of concrete measures to tackle stubborn inflation.
(With inputs from agencies)
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