Treasury Yields Fully Rebound From Fed-Induced Angst

(Bloomberg) -- The Federal Reserve-induced angst that overwhelmed the Treasury market a month ago has -- by one key metric -- disappeared.

Yields on 10-year notes rose to 2.585 percent on Tuesday, the highest level since the Federal Open Market Committee’s surprisingly dovish policy shift on March 20. That’s essentially back to where it was -- 2.5889 percent -- just before the Fed’s announcement that day, according to data compiled by Bloomberg.

The Fed’s revised projections for interest rates led traders to position more aggressively for a recession, sending 10-year yields as low as 2.338 percent on March 28. But those concerns have abated following better-than-feared U.S. data, including a recovery in the jobs market in March. This has reassured investors that the Fed means what it says: It will be patient with its next move on rates after three years of hikes.

“The domestic economic data hasn’t deteriorated enough to warrant a preemptive Fed cut –- which limits how low yields can fall barring the pricing in of an aggressive easing campaign,” BMO strategist Ian Lyngen wrote in a note to clients Tuesday.

The increased appetite for riskier assets has prompted a rally in U.S. stocks, driving a 3 percent gain in the S&P 500 since March 20. It also corresponds with a recent updraft in global yields, following improved Chinese data and an extension of Brexit negotiations. The German 10-year yield pulled out of its dip into negative territory at the end of last week.

Whether or not this rise in yields will continue may depend on the next set of data from China, the world’s second-largest economy. Its gross domestic product, industrial production and retail sales reports are slated for release Wednesday.

To contact the reporter on this story: Emily Barrett in New York at ebarrett25@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Nick Baker, Elizabeth Stanton

©2019 Bloomberg L.P.