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Oct. 19, 2021, 4:24 p.m. EDT

10-year Treasury yield rises to 5-month high as Fed’s Waller says tapering should start in November

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By Mark DeCambre

U.S. Treasury yields climbed on Tuesday, pushing the 10-year Treasury note back to its highest level since around May, as the stock market rose.

Federal Reserve Gov. Christopher Waller said that the central bank should begin tapering its monthly purchases of $120 billion in Treasurys and mortgage-related assets next month, affirming market expectations for a reduction in programs that were launched during the height of the pandemic but were viewed as no longer needed.

What are yields doing?

  • The 10-year Treasury note yields /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.99% 1.634%, marking its highest level since May 19, compared with 1.583% at 3 p.m. Eastern Time on Friday.

  • The 2-year Treasury note /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -1.66% rate was at 0.391%, down from 0.419% a day ago.

  • The 30-year Treasury bond /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y +3.59% was yielding 2.087%, compared with 2.015% on Monday. The so-called long bond hit its highest rate since Oct. 12.

What’s driving the market?

The 10-year Treasury note yield reached highs not seen since mid-May on Tuesday as stocks climbed and investors continued to a respond to a hawkish shift in monetary policy.

On Tuesday, Waller said he thought that criteria of “substantial further progress” in economic conditions had been met to began scaling back asset purchases, but cautioned that interest-rate raises were “some time off.”

“While there is still room to improve on the employment leg of our mandate, I believe we have made enough progress such that tapering of our asset purchases should commence following our next [Federal Open Market Committee] meeting,” which is set for Nov. 2-3, said Waller in a speech to Stanford Institute for Economic Policy Research .

That said, Waller acknowledged that if inflation remains persistently hot that the central bank will be forced to take more aggressive action.

“If monthly prints of inflation continue to run high…a more aggressive policy response than just tapering may well be warranted in 2022,” he said.

Analysts have been concerned that the Fed may need to taper its pandemic-era purchases at faster clip as a prelude to soon lifting policy interest rates to curb inflation.

Yields for debt also have been sensitive to signs of near-term pricing pressures emanating from the energy market, with U.S. crude-oil futures /zigman2/quotes/211629951/delayed CL.1 -0.46% rising to the highest level in about seven years.

In economic reports, a report on U.S. housing starts and permits for September showed that home builders started construction on homes at a seasonally-adjusted annual rate of 1.56 million in September, representing  a 1.6% decrease from the previous month , the U.S. Census Bureau reported Tuesday.

Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.59 million, down 7.7% from August. Economists had expected housing starts to occur at a pace of 1.61 million and building permits to come in at a pace of 1.67 million. 

What analysts are saying

“And yes, taper then rate hikes with the market quickly pricing in the latter. In the end, there is plenty of time between now and the middle of 2022,” wrote Gregory Faranello, executive director of AmeriVet Securities, in a Tuesday research note, referring to market-based expectations that the first interest rate hike might occur in the middle of next year.

“And once the taper process begins and rolls into 2022, the markets will reevaluate how quickly the Fed will deliver increases to official rates. In linear fashion (granted, could be quicker as per Powell) at $15 billion per month beginning next month, we end up at the June FOMC.  Rate hikes that same month? 

/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
1.49
+0.01 +0.99%
Volume: 0.00
Dec. 9, 2021 6:15a
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/zigman2/quotes/211347045/realtime
add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
0.68
-0.01 -1.66%
Volume: 0.00
Dec. 9, 2021 6:14a
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/zigman2/quotes/211347052/realtime
add Add to watchlist BX:TMUBMUSD30Y
BX : Tullett Prebon
1.86
+0.06 +3.59%
Volume: 0.00
Dec. 9, 2021 6:15a
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/zigman2/quotes/211629951/delayed
US : U.S.: Nymex
$ 72.03
-0.33 -0.46%
Volume: 77,672
Dec. 9, 2021 6:05a
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