Bond yield caps remain in market sight after Powell comments


By Kate Duguid

NEW YORK (Reuters) – Federal Reserve Chair Jerome Powell on Wednesday said the question remains open as to whether the U.S. central bank will use yield curve controls, reinforcing market expectations that it is gearing up to do so to stimulate the economy.

As the U.S. economic reopening has prompted a stock market rebound and lifted yields on longer-dated Treasuries, bond market players have argued the Fed may cap yields at specific points on the curve, by buying 2- or 3-year maturities for example, to reinforce its guidance that rates are not going up anytime soon.

In his introductory remarks before Wednesday’s post-policy meeting press conference, Powell flagged that policymakers had a full discussion about employing yield curve controls but for now would continue with its current level of purchases of Treasury bonds and mortgage-backed securities.

“Whether such an approach would usefully complement our main tools remains an open question,” he said. He added that the bank would continue the discussion in upcoming meetings.

“I think they are open to anything and everything but not ready to put (yield curve control) into action. (Powell) wants to save that bullet,” said Nick Maroutsos, co-head of global bonds at Janus Henderson Investors.

U.S. Treasury yields fell following Powell’s remarks, which steepened a part of the yield curve. The spread between the 5- and 30-year yields widened modestly, last up 1.8 basis points to 119 basis points. The spread between 2- and 10-year yields , the most common measure of the yield curve, however, was narrower by 6.4 basis points.

Bank of America (NYSE:) analysts said on Wednesday the explicit reference to the study of yield curve control supported a steepening of the 5- to 30-year curve and the meeting in general supported “the need to hedge for the possibility of higher longer-term rates.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Let’s block ads! (Why?)

Economy News

Leave a Reply

Your email address will not be published. Required fields are marked *