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Bond Report: Two- and 10-year U.S. bond yields rise for fourth straight week after Powell’s hawkish Jackson Hole address


U.S. bond yields were mixed on Friday, though 2- and 10-year yields notched their fourth straight weekly advances, after Federal Reserve Chair Jerome Powell’s blunt message that fighting inflation would be policy makers’ No. 1 job despite the costs to the economy.

What’s happening

The yield on the 2-year Treasury

was up 1.9 basis points at 3.391% versus 3.372% on Thursday. It gained 12.6 basis points this week.

The yield on the 10-year Treasury

was up 1.1 basis points at 3.034% versus 3.023% Thursday afternoon. It rose 4.7 basis points this week.

The yield on the 30-year Treasury

fell 3.1 basis points to 3.203% from 3.234% late Thursday. It declined 2.2 basis points this week, the largest one-week decline since the period that ended July 22, based on 3 p.m. levels, according to Dow Jones Market Data.

The 2- and 10-year yields have risen by 49.4 basis points and 39.2 basis points, respectively, over the last four weeks. Those are the biggest four-week gains since June.

What’s driving markets

Powell, speaking at the Fed’s annual symposium in Jackson Hole, Wyo., said the central bank’s “overarching” goal is to bring inflation back to its 2% goal and policy makers will stick with that task until the job is done.

See: Fed’s Powell, in blunt remarks at Jackson Hole, says bringing down inflation will cause pain to households and businesses

In addition, he said the Fed will be using its tools “forcefully,” which will likely lead to a softening of labor market conditions, and another unusually large rate hike may be appropriate. But a failure to restore price stability would involve greater pain, according to Powell. At some point, though, the Fed will likely need to slow the pace of its rate increases, he said.

Powell’s remarks came after data released on Friday showed that the Fed’s preferred measure of inflation fell last month due to declining gas prices. The personal-consumption price index came in with a year-over-year rate of 6.3%, down from 6.8% in the prior month, while the core reading that excludes food and energy costs edged down to 4.6% from 4.8% in the 12 months ended in July.

Traders have been looking for clues on what the Fed will do this year, as well as how the Fed may react next year, particularly if the U.S. economy slides into recession.

In other developments Friday, Atlanta Federal Reserve President Raphael Bostic told CNBC that he’s leaning toward a half a percentage point interest rate hike in September following the better-than-expected inflation data released earlier in the morning.

U.S. consumer spending rose a scant 0.1% in July, while the U.S. trade deficit in goods sank 9.7% last month. 

What analysts are saying

“Powell, as expected, focused on inflation and said he was willing to tolerate some pain to households and businesses to bring down high prices,” said Michael Wang, chief executive of Prometheus Alternative Investments

“Basically, this means Powell will commit to maintaining a restrictive policy for some time, possibly into the beginning of next year,” Wang wrote in an email. “This Fed speak means we’ll see rates continue to increase, since we’re not yet in restrictive territory, and that rate cuts won’t come as easily or as soon as the market expects. Expect further tightening from the central bank as markets look for stability and transparency for the rest of the year.”

Dow tumbles 950 points, Nasdaq drops 3.8% after Powell warns of pain to households in inflation battle

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