Fed Pause Aside, Global Bond Sell-Off Ahead Of Powell Testimony Put Pressure On Treasuries: Are Rate Hikes Done Finally?
Treasury yields jumped during the Asian trading session on Tuesday following a global sell-off in the bond market. The decline emerged in the United Kingdom. where investors and traders weighed on the possibility of extended rate hikes due to sticky inflation, reported Bloomberg. Market participants are also awaiting Federal Reserve Chairman Jerome Powell's testimony to Congress on Wednesday.
The yield on the 10-year U.S. treasury rose as much as 3.82% before cooling off a bit. Australian yields with the same maturity rose eight basis points to their highest this year, reported Bloomberg.
Markets had priced-in expectations that central banks would respond to signs of inflation cooling by softening their policy. However, policymakers remained aggressive on concerns that inflation may stay above their targets for too long.
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Following last Wednesday's Fed policy announcement, Powell had asserted in his speech that not a single person on the committee wrote down a rate cut this year. "Nor do I think it is at all likely to be appropriate if you think about it. Inflation has not really moved down. It has not so far reacted much to our existing rate hikes. And so we’re going to have to keep at it," the Fed Chair had said.
Price Action: The iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY) and the Vanguard Short-Term Treasury Index Fund ETF (NASDAQ:VGSH) shed 0.14% on Friday, according to Benzinga Pro.
The bond market sell-off commenced with gilts or U.K. bonds declining on Monday prior to the release of the country's inflation data on Wednesday and the Bank of England's policy decision the following day, according to the Bloomberg report.
"While there is little doubt that the #BoE will increase interest rates on Thursday, there will be lots of views on the size of the hike and the policy guidance for what follows–as standalone, and in combination. Indeed, of the four major central banks, the BoE faces one of the trickiest sets of policy challenges," Allianz chief economic adviser and noted economist Mohamed El-Erian said in his tweet.