U.S. Treasury yields rose to two-week highs on Thursday after St. Louis Federal Reserve President James Bullard called for the U.S. central bank to begin paring bond purchases soon, and before Fed Chair Jerome Powell is due to speak on Friday.
The Fed is "coalescing" around a plan to begin a taper, Bullard said, adding that "we don't need the asset purchases at this point." He also said he is skeptical that inflation will moderate next year.
Minutes from the Fed's July meeting released last week showed that the bulk of the bank's policy-setting committee expect the Fed will start trimming its bond-buying program later this year, though consumer sentiment and economic data have weakened since the July meeting. Powell may hesitate to offer any new insight on a timeline for a taper on Friday as he waits to see how the spread of Delta variant coronavirus cases affects the economic outlook.
“There is some uncertainty with exactly where we are in the economy and how the Fed proceeds with the Delta,” said Lou Brien, a market strategist at DRW Trading in Chicago. The Jackson Hole, Wyoming, event is being held virtually due to the spread of coronavirus cases on the region.
Choppy Trading, Light Liquidity
Benchmark 10-year note yields were last 1.356%, after reaching 1.375% following Bullard's comments, the highest since Aug. 12. If they rise above the Aug. 12 high of 1.379%, it will be the highest since July 14. Trading was choppy and liquidity light with many traders and investors out for August summer vacations.
Separately, data from the Commerce Department on Thursday showed that the U.S. economy grew a bit faster than initially thought in the second quarter, lifting the level of gross domestic product (GDP) above its pre-pandemic peak, as massive fiscal stimulus and vaccinations against COVID-19 boosted spending.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 353,000 for the week ended Aug. 21. The Treasury will sell $62 billion in seven-year notes on Thursday, the final sale of $183 billion in short and intermediate-dated supply this week. The government saw strong demand for a $60 billion auction of two-year notes on Tuesday and average demand for a $61 billion sale of five-year notes on Wednesday.
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