Treasury yields hold steady after Brainard says combating inflation is Fed’s most important task for foreseeable future

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US government debt yields barely rose on Thursday afternoon following testimony from Federal Reserve Gov. Lael Brainard, who said that easing inflation will be the central bank’s most important task for the foreseeable future.

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Data released earlier in the day showed US weekly jobless claims hit the highest level since mid-November, while US wholesale prices rose only 0.2% last month, but 9.7 in the previous year. % has increased. Meanwhile, the gap between 2- and 10-year yields shrank to 82 basis points, while the gap between 5- and 30-year yields narrowed to 58 basis points.

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What is driving the market?
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Returns to maturity have risen sharply at the beginning of the year as investors prepare for periods of higher-than-normal inflation and a Federal Reserve that seeks to tighten monetary policy to counter it.

During her confirmation hearing to take the central bank’s No. 2 spot, Brainard said “inflation is very high, and workers across the country are worried about how far their paychecks will go.” “Our monetary policy is focused on bringing inflation back to 2%, while maintaining a recovery that is all-encompassing,” she said.

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Lyle Brainard says inflation is ‘too high’. The Fed will work to bring it down.

Some analysts are beginning to bet that the yield will end up significantly higher in 2022, with the 10-year touch touching 2%, especially if pricing pressures require it to exceed the three benchmark interest rates that market-based estimates. are showing. St. Louis Fed Chairman James Bullard said on Wednesday that Four interest rate hikes were expected this year.

factset

Data released Thursday showed US wholesale prices rose a modest 0.2% in December, the smallest increase in 13 months. Growth in the producer price index fell from the 0.4% forecast of economists polled by The Wall Street Journal. Meanwhile, wholesale prices declined to 9.7% in the past one year as against 9.8% in the previous month. This was the first drop in the annual rate since the start of the pandemic.

The PPI’s report came a day after the December consumer-price index headline showed year-on-year inflation rose to a nearly 40-year high of 7%, indicating that higher prices are likely to continue into 2022. Chances are.

Meanwhile, initial jobless claims rose by 23,000 to 230,000 for the week ended January 8, the highest since mid-November. Economists polled by the Wall Street Journal estimated the new claims would drop to 200,000. Although jobless claims were higher than expected, they pointed to a tight job market.

Looking ahead, investors will see $22 billion in 30-year bonds auctioned at 1 p.m. Eastern Time, which could impact Treasury trading.

what analysts are saying

Greg Basuk, chief executive of AXS Investments, said although the PPI rose lower than expected, “we believe investors have reason to remain hyper-focused on factors likely to keep inflation elevated in the coming months.”

Although consumer-price data “summarized on Wednesday satisfied investors with expectations that inflationary pressures may be more durable, we caution investors that one-month data is not a market cycle, and inflation based on a one-month reading.” Premature conclusions could lead to misalignment on the trajectory of the investor portfolio,” Basuk wrote in an e-mail.

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