After Powell's testimony on Tuesday to the Senate Banking Committee opened the door to a 50-basis-point interest rate hike, potentially as soon as the U.S. central bank's next policy announcement on March 22, Powell told the U.S. House of Representatives Financial Services Committee that Fed officials had not made a decision on the size of this month's rate hike.
Shorter-dates yields jumped on Tuesday after Powell's comments and reached 5.084% early on Wednesday, the highest level since June 15, 2007.
But longer-dated yields dipped and a closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes , was at a negative 107.3 basis points, its deepest inversion since 1981. Such an inversion is seen as a reliable recession indicator.
"Now investors fear the Fed is going to overdo it, tighten too much," said Jack Ablin, chief investment officer at Cresset Capital in Chicago. "If you look at small business sentiment, you look at consumers, clearly we are headed lower, economic growth is headed pretty low and with it likely inflation and my frustration is the chairman is riding a bicycle and looking down at his pedals and not over the handle bars."
Yields have steadily climbed in recent weeks after the blockbuster January jobs report and other economic data pointed to a tight labor market, which increased expectations the Fed would have to maintain its path of rate hikes in the face of stubbornly high inflation.
Labor market data on Wednesday from ADP and the Labor Department's Job Openings and Labor Turnover Survey, or JOLTS report, once again signaled a tight labor market.
The yield on 10-year Treasury notes was down 5.6 basis points to 3.919%.
The yield on the 30-year Treasury bond was
down 5.4 basis points to
3.834
%.
The February jobs report, due to be released on Friday, is expected to show nonfarm payrolls increased by 205,000, according to economists polled by Reuters, after the 517,000 jobs reported in January. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 2.1 basis points at 4.990%.
More supply will come to the market this week when the Treasury Department auctions $32 billion in 10-year notes on Wednesday and $18 billion in 30-year bonds on Thursday. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.555%, after closing at 2.631% on Tuesday. The 10-year TIPS breakeven rate was last at 2.339%, indicating the market sees inflation averaging 2.3% a year for the next decade. (Reporting by Chuck Mikolajczak; Editing by Paul Simao)
