After experiencing volatility in the past few sessions amid concerns over the interest rate cut, the U.S. Treasury yields surged sharply after Federal Reserve Chairman Jerome Powell announced to keep the interest rates unchanged. Powell’s comments over the potential decline in inflation added to the sentiments.
Treasury Yields were initially under pressure before Powell’s announcement; yields fell to one-month lows due to sentiments that the decline in inflation is likely to last longer than the expectations. However, yields rose after Powell comments that the decline in inflation is temporary.
The two-year note yields climbed to 2.30% and the 10-year note yields rose to 2.51%. The 30–year bond yield plunged 1.7 basis points to 2.91%; the bond price generally has an inverse relation with yields.
“We think our policy stance is appropriate at the moment and we don’t see a strong case for moving in either direction,” Powell said. “We would be concerned if inflation were running persistently above or below 2%.”
Although the fed kept its interest rate in the range between 2.25% and 2.5%, it reduced the rate on excess reserves from 2.40% to 2.35%.
At the end of last week, consumer spending jumped to 0.9% overall, supported by growth in expenditures on health care and motor vehicles. However, the core personal consumption expenditures remain flat compared to last month but increased 1.6% on a year over year.
Inflations numbers remain the big factor for treasury yield. The Fed officials always like to see inflation in the range of 2%, which they believe is the best level for a healthy economy. Investors and some Fed officials are showing concerns over the decline in inflation numbers particularly due to volatile food and energy categories.