Treasury yields broadly steady as investors assess Fed’s March meeting minutes

Gold closes out Thursday trade higher, aims for weekly gain

Treasury yields held relatively steady on Wednesday, with the 10-year rate just below 2.6%, as investors scoured the minutes of the Federal Reserve’s March policy meeting.

The minutes indicated that the Fed plans to reduce its balance sheet by $95 billion per month after a phase-in period, and that many policy makers said “one or more” 50 basis point rate hikes could be appropriate going forward.

What are yields doing?
  • The yield on the 10-year Treasury note

    was 2.591%, compared with 2.554% at 3 p.m. Eastern on Tuesday. Tuesday’s level was the highest since April 23, 2019.

  • The 2-year Treasury note yield

    stood at 2.506%, compared with 2.502% Tuesday afternoon. Tuesday’s level was its highest since March 6, 2019.

  • The yield on the 30-year Treasury bond

    was 2.621% versus 2.582% late Tuesday.

What’s driving the market?

Minutes from the Fed’s March 15-16 policy meeting showed that many policy makers wanted a 50 basis point rate hike last month, but accepted a smaller move due to Russia’s war on Ukraine. It also confirmed that the Fed’s balance-sheet reduction could start as soon as May.

On Tuesday, Fed Gov. Lael Brainard reinforced expectations that the Fed will move quickly in reducing the balance sheet — sending yields jumping, particularly at the long end of the yield curve. She said the central bank will “continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting.”

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The rise in yields, which saw the 10-year move back above the 2-year on Tuesday and undo an inversion of that closely watched part of the yield curve, was blamed for sinking technology shares and other so-called growth stocks on Tuesday. As of Wednesday afternoon, U.S. stocks headed for a second day of declines after the minutes were released.

See: Stock market in for ‘rough ride’ after ‘tough talk’ on Fed balance sheet, says economist

Investors also continue to monitor developments in Ukraine. The U.S., along with other Group of Seven countries and the European Union were set Wednesday to announce new sanctions on Russia over its invasion of Ukraine, after evidence of alleged war crimes emerged as Russian forces pulled back from the area around Kyiv.

What are analysts saying?

“We’ve downgraded our growth forecasts, with an out-of-consensus view that a U.S. recession is now the base case by the end of next year,” said Deutsche Bank Research’s Henry Allen, Jim Reid, and Tim Wessel.

That’s because “higher inflation will require a more aggressive tightening in monetary policy from central banks, and we now see the Fed moving much faster, with 50bp hikes at the next 3 meetings, and a terminal rate of 3.6% by mid-2023,” they wrote in a note Wednesday, before the Fed’s minutes were released. “The outlook has been further dampened by Russia’s invasion of Ukraine, which has pushed up energy prices and led to further disruption for key commodity markets and supply chains.”

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