What happened: Long-dated Treasury bond yields stayed elevated on Thursday as investors digested the Fed’s decision to hold rates steady, while Wall Street pointed to signs of credibility trouble at the central bank.
The 10-year Treasury (^TNX) rose to 4.66% while the 30-year Treasury (^TYX) remained near 5.20% after touching its highest level since 2007 on Wednesday
What’s behind the move: While the two-year bond yield shed four basis points during Fed Chairman Kevin Warsh’s presser on Wednesday, the 10-year and 30-year inched higher. The move on long-dated yields signals investors worry the Fed is falling behind the curve on inflation, prompting them to demand a higher yield premium to lock up capital long-term “Market moves post meeting were consistent with a central bank inflation credibility shock,” Bank of America Global Research economist Aditya Bhave and his team wrote. “Ironically, we think the need to reestablish credibility increases the probability that the Fed will hike in September, all else equal,” they added. The firm predicts that the Fed will hike by 25 basis points each at its remaining three meetings this year.
Polymarket bettors raised their odds of a September rake hike to 56% following Warsh’s presser. What else you need to know: Fed Chairman Kevin Warsh has indicated he would not be providing forward guidance in order for the market to react. Though Warsh reiterated the Fed’s determination to bring inflation back down to 2%, his commentary during the presser seemed to shift.