logo
Plus   Neg
Share
Email

Treasuries Rebound From Early Weakness After Powell Comments

After moving modestly lower early in the session, treasuries turned higher over the course of the trading session on Wednesday.

Bond prices fluctuated in mid-day trading before closing in positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slipped 1.1 basis points to 3.044 percent.

Treasuries showed notable rebound as Federal Reserve Chairman Jerome Powell described the current level of interest rates as "just below" neutral.

Powell noted in a speech at the Economic Club of New York that the Fed began gradually raising interest rates from near-zero levels about three years ago as the economy improved.

The Fed has raised three times in 2018 to a range of 2 to 2.25 percent and has forecast another rate hike before the end of the year.

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy--that is, neither speeding up nor slowing down growth," Powell said.

The latest remarks seem to conflict with comments Powell made early last month, when he described rates as a "long way from neutral."

Powell also said the economy is close to achieving both of the Fed's objectives of promoting maximum employment and price stability.

The Fed Chief stressed rates are not on a "preset" path and said the central bank will pay very close attention to incoming data.

"As always, our decisions on monetary policy will be designed to keep the economy on track in light of the changing outlook for jobs and inflation," Powell said.

Ahead of Powell's remarks, President Donald Trump attacked the Fed Chairman in an interview with the Washington Post published late Tuesday.

Trump told the Washington Post he is "not even a little bit happy" with Powell, blaming the Fed for recent stock market weakness and General Motors' (GM) announcement of plant closures and layoffs.

"I'm doing deals, and I'm not being accommodated by the Fed," Trump said. "They're making a mistake because I have a gut, and my gut tells me more sometimes than anybody else's brain can ever tell me."

"So far, I'm not even a little bit happy with my selection of Jay. Not even a little bit," he added. "I think that the Fed is way off-base with what they're doing."

CME Group's FedWatch tool currently indicates an 82.7 percent chance the Fed will raise rates by another quarter point to a range of 2.25 to 2.50 percent at its monetary policy meeting next month.

Treasuries gave back ground after spiking in reaction to Powell's remarks but moved back to the upside after the Treasury Department revealed its auction of $32 billion worth of seven-year notes attracted slightly above average demand.

The seven-year note auction drew a high yield of 2.974 percent and a bid-to-cover ratio of 2.55, while the ten previous seven-year note auctions had an average bid-to-cover ratio of 2.51.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Today's seven-year note auction came after the Treasury sold $39 billion worth of two-year notes on Monday and $40 billion worth of five-year notes on Tuesday.

In U.S. economic news, a report released by the Commerce Department showed the pace of economic growth in the third quarter was unrevised.

The report said real gross domestic product jumped by 3.5 percent in the third quarter, unrevised from the initial estimate and in line with economist estimates.

Upward revisions to non-residential fixed investment and private inventory investment were offset by downward revisions to consumer spending and state and local government spending.

A separate report from the Commerce Department showed a substantial decrease in new home sales in the month of October.

The Commerce Department said new home sales plummeted by 8.9 percent to an annual rate of 533,000 in October from an upwardly revised rate of 597,000 in September.

Economists had expected new home sales to rise to a rate of 575,000 from the 553,000 originally reported for the previous month.

With the steep drop, new home sales tumbled to their lowest level since hitting an annual rate of 538,000 in March of 2016.

Trading on Thursday may be impacted by reaction to reports on weekly jobless claims, personal income and spending and pending home sales as well as the minutes of the Fed's latest monetary policy meeting.

For comments and feedback contact: editorial@rttnews.com

Market Analysis

Follow RTT