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U.S. Treasury yields fell early Thursday as investors weighed an interest rate hike by the Bank of England and awaited the outcome of a European Central Bank policy meeting, taking back some of the rise in yields seen in the previous session after the Federal Reserve moved to accelerate the wind-down of its asset-buying program and penciled in three interest-rate increases in 2022.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.466%
fell to 1.449% from 1.46% at 3 p.m. Eastern on Wednesday. -
The 2-year Treasury yield
TMUBMUSD02Y,
0.657%
declined to 0.657%, compared with 0.683% late Wednesday. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
1.888%
was at 1.846%, down from 1.851%.
What’s driving the market?
Yields rose Wednesday after the Fed, in its final policy meeting of 2021, decided to more quickly wind down, or taper, its monthly asset purchases, putting them on track to end by March instead of June. The latest so-called dot plot, tracking individual policy makers’ rate expectations, showed expectations for rates to rise three times in 2022, versus a September forecast that had shown half of policy makers looking for one hike next year.
Other central banks were in focus early Thursday, with Bank of England policy makers voting 8-1 to raise its key lending rate by 15 basis points to 0.25%, despite the spread of the omicron variant of the coronavirus that causes COVID-19, which had been seen potentially influencing the outcome.
Read: Pound, gilt yields rise after Bank of England makes surprise rate hike
The ECB, meanwhile, was expected to affirm that its supplemental Pandemic Emergency Purchase Program, or PEPP, will end as scheduled in March, but economists saw policy makers potentially taking steps to soften the blow by increasing the size of its Asset Purchasing Program.
The U.S economic calendar features the weekly reading on first-time jobless benefit claims at 8:30 a.m. Eastern, along with the Philadelphia Fed’s December manufacturing index and November figures on building permits and housing starts.
Data on November industrial production and capacity utilization is slated for 9:15 a.m., while Markit purchasing manager index readings on December manufacturing and services activity is set for 9:45 a.m.
What are analysts saying?
“We believe [Fed Chairman Jerome] Powell struck the right tone during the press conference: he was hawkish enough to calm inflation hawks, but not hawkish enough to scare the doves,” wrote Aneta Markowska, chief economist at Jefferies, in a note. “His performance should deflect future criticism and give the Fed enough policy space to ‘do the right thing.’”
