BOND REPORT: Treasury Yields Rise After Fed's Beige Book Signals Inflation Buildup
Treasury yields swung higher Wednesday after the Federal Reserve's Beige Book showed a buildup of inflationary pressures in its regional districts.
What are yields doing?
The yield on the benchmark 10-year U.S. Treasury note climbed 3.5 basis points to 2.579%, while the yield on the 30-year bond rose 1.4 basis point to 2.850%.
The yield on the 2-year note , sensitive to shifting expectations for central bank policy, rose 2.5 basis points to 2.043%. The yield for the short-dated maturity has been up for 11 straight trading sessions.
Yields and Treasury prices move in opposite directions.
What's driving the market?
The Fed's so-called beige book, a roundup of economic anecdotes gathered by regional Fed banks, painted a portrait of a robust U.S. economy. But traders fixated mostly on reports that wage pressures were 'modest'.
Central bankers would be able to raise rates at a swifter pace this year without incurring the doubts of bullish bond investors, who have cited the Fed's willingness to tighten monetary policy despite muted inflation data. A resurgence of inflation could dispel such concerns and give a lift to long-dated yields.
See: Fed's Beige Book finds muted reaction to Republican tax plan (http://www.marketwatch.com/story/feds-beige-book-finds-muted-reaction-to-republican-tax-plan-2018-01-17)
Dallas Fed President Robert Kaplan said there could be more than three rate increases in 2018 (https://www.wsj.com/articles/feds-kaplan-expects-3-rate-rises-this-year-but-says-more-may-be-needed-1516183201). Cleveland Fed President Loretta Mester is set to speak at 4:30 p.m.
Worries persist over the potential for a government shutdown at the end of the week unless lawmakers and the White House come to an agreement. House Republicans released a short-term spending bill on Tuesday to avert a government shutdown on Friday. But the bill precluded details of an immigration deal seen as key to earning Democrats' support.
See: Here's how the stock market has handled past government shutdowns (http://www.marketwatch.com/story/heres-how-the-stock-market-has-handled-past-government-shutdowns-2018-01-16)
What are analysts saying?
"The note that some firms are finding more power to increase prices for consumers is very encouraging...we will see an acceleration in the inflation data during the first quarter," said Thomas Simons, senior money market economist for Jefferies.
"The US government shutdown tango is back on the front burner with its full complement of bravado, accusations, and intrigue. It looks like House Republicans are trying to get another can kicking done by taking the immigration issue off the table for the Friday deadline," said Arnim Holzer, strategist for EAB Investment Group.
What else is on investors' radar?
December industrial production jumped 0.9% in December, above the 0.6% MarketWatch forecast, up from 0.2% in December. This marked the fourth straight monthly increase since August. Capacity utilization, a measure of manufacturing slack, rose to 77.9% in December (http://www.marketwatch.com/story/industrial-output-jumps-09-in-december-for-the-fourth-straight-monthly-gain-2018-01-17), the highest rate since February 2015.
What other assets are in focus?
The 10-year German bond yield , often used as a proxy for the broader eurozone economy, was flat at 0.497%, according to Tradeweb.
(END) Dow Jones Newswires
January 17, 2018 15:49 ET (20:49 GMT)