Bond Report: 10-year Treasury yield sees biggest fall in 7 months as Powell testifies, commodities soften

Treasury yields fell sharply Wednesday as Federal Reserve Chair Jerome Powell reiterated a commitment to reining in inflation and falling commodity prices underline economic growth fears.

What yields are doing

The yield on the 10-year Treasury note

dropped 14.9 basis points to trade at 3.155% at 3 p.m. Eastern, its biggest daily drop since Nov. 21, according to Dow Jones Market Data.

The 2-year Treasury note yield

fell 14 basis points to 3.056%.

The 30-year Treasury bond yield

declined 14.7 basis points to 3.241%.

What’s driving the market

Federal Reserve Chairman Jerome Powell, delivering the first of two days of congressional testimony, pushed back against economists who argue that aggressive Fed interest-rate hikes have increased the odds of a recession for the U.S. economy.

Powell told the Senate Banking Committee that the central bank is committed to bringing inflation down and that additional rate hikes are coming, while only the size of the upcoming moves has not been decided.

Treasury yields have risen sharply in 2022 in response to surging and persistent U.S. inflation, which has prompted the Fed to raise its benchmark interest rate quickly. The Fed last week hiked the fed-funds rate by 75 basis points, or three-quarter of a percentage point — its largest rise since 1994 — after a half-point hike in May and a quarter-point rise in March. The Fed has also started shrinking its balance sheet.

The moves by the Fed and other major central banks have stoked recession fears.

Commodity prices were in retreat on Wednesday, with oil prices falling more than 3%, a move analysts said reflected recession worries. U.S. stocks ended a choppy session in negative territory.

On the supply front, the U.S. Treasury Department sold $14 billion of 20-year bonds

at a high yield of 3.488% versus a when-issued yield of 3.486% at the time of the auction. “Bidding stats were solid overall, though none were particularly remarkable,” said Thomas Simons, money markets economist at Jefferies, in a note.

What analysts say

“Bond market volatility remains intense, with inflation worries and growth fears driving confusion among investors. Just this month, the 10-year Treasury yield has gone from 2.9% to 3.5% before fading to 3.2% today. There is similar confusion in inflation expectations, with the 5-year break-even inflation rate dropping from 3.6% in March to 2.8% currently, as growth concerns begin to outweigh inflation,” said Mark Hackett, chief of investment research at Nationwide.

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