Treasury Yields Keep Rising as Central Banks Seem Set to Dial Back on Stimulus
It's not really that central banks are suddenly hawkish. But they are suddenly more hawkish than they used to be.
That's causing global yields to rise, including U.S. Treasuries. The yield on the benchmark 10-year note climbed early Wednesday morning to as high as 2.26%, the highest yield in more than a month, before slipping back by 8 am. ET to 2.24%.
European Central Bank President Mario Draghi kicked things off Tuesday morning when he made some upbeat comments about the eurozone economy and implied scaling back on quantitative easing is coming. Fed Chair Janet Yellen followed up later Tuesday by reiterating her view that asset prices look expensive and the U.S. economy can handle more interest rate hikes
Many interest rate strategists are skeptical that the Treasury selloff will last that long.
Brian Daingerfield of NatWest Markets writes in his morning note Wednesday:
I think for US Treasury investors that this is still a dip that will be bought. The lack of any clear upside risk from core inflation on Friday and the further delay of US healthcare overhaul, which puts a full turn to tax reform on delay, each stand in the way of a break to definitively higher rates.
Ian Lyngen and Aaron Kohlie of BMO Capital Markets write:
We're still leaning into a selloff for the moment as we see signs that sentiment is too positive for Treasuries and in need of correction. Once positions have witnessed a greater washout, we will be even more full-throated in our defense of lower yields, but for now, we're content to watch the market feel some pain as weak hands shake out and sentiment and momentum return to more reasonable levels. Ironically, this will very likely setup what we feel will be a much stronger (and healthier) move to lower yield levels in the coming weeks and months.
Update: By about 8:30 a.m. ET, news services were reporting that the European Central Bank was concerned markets had overreacted to Draghi's comments, which weren't meant to signal tapering is coming soon. Global yields slipped back.
Michael Cartine, senior rates analyst at Thomson Reuters, wrote at about 8:45 a.m.:
Concurrent with other newswires reportedly saying the market overreacted to European Central Bank President Draghi's comments yesterday, Reuters is headlining a report that the market