Treasury Yields Rise as Draghi Gets More Hawkish
An apparent pivot in inflation expectations from European Central Bank President Mario Draghi on Tuesday sent eurozone and U.S. government bond yields higher.
The yield on the benchmark 10-year Treasury note jumped to 2.17% from 2.13% early Tuesday after Draghi expressed confidence that inflation in the eurozone would rise.
The euro surged against the dollar. Draghi reportedly said in a speech in Portugal:
All the signs now point to a strengthening and broadening recovery in the euro area. Deflationary forces have been replaced by reflationary ones.
Peter Boockvar of The Lindsey Group says he's prepping markets for when the the ECB eventually starts tapering its bond purchases. "Today was a first step in setting us up for that," he wrote.
Boockvar sees this as a big risk for long-term bond prices in the U.S. He writes:
I'll stick to my belief that the biggest risk to long end US bond yields and seeing them higher is NOT an acceleration in economic growth and/or inflation but the inevitable reversal of the European bond market bubble.
Fed Chair Janet Yellen speaks at 1 p.m. ET Tuesday in Europe. Investors are eager to hear if she will sound equally as hawkish as she did at the last Fed meeting in mid-June.