Treasury yields rise ahead of Fed meeting

The yield on the benchmark 10-year Treasury note rose to 1.62%. The yield on the 30-year Treasury bond rose to 2.38%.

Investors will be paying close attention to the Fed’s meeting to see if the U.S. central bank tweaks its interest rate outlook or signals how soon it might pare back of its bond-buying program. The Fed will release new economic and interest rate forecasts, which could show Fed officials expect to raise rates by 2023.

Fed Chairman Jerome Powell will hold a press briefing after the second day of the meeting on Wednesday afternoon.

Photo: CNBC

February retail sales fell by more than expected, down 3%, data released Tuesday showed. However, January’s retail sales figures was revised upward to a 7.6% jump from a 5.3% increase, so the stock and bond market largely ignored the number.

Don’t rule out a 10-year Treasury Note yield as high as 2.25% this year.

That’s the message from Wells Fargo Securities’ Michael Schumacher, ahead of Wednesday’s Federal Reserve interest rate decision.

“The fiscal stimulus is enormous, and the vaccine rollout seems to be accelerating quite a bit — not just here in the U.S.,” the firm’s head of macro strategy told CNBC’s “Trading Nation” on Tuesday. “A lot of things are coming together to push yields up.”

Yet, Schumacher said his firm doubts Fed Chairman Jerome Powell will show immediate concern.

“He’s been pretty sanguine about the whole increase in yields. We think he’ll maintain that stance tomorrow,” he said. “Our view at Wells Fargo is he will not really try to slow it down.”

Instead, Schumacher said he expects Powell to link rising yields to a vote of confidence in the economic recovery and to indicate it’s a catch-up move for having low inflation for such a long time.

“The world has never seen a coordinated reopening like this, ever. Not even after World War II,” said Schumacher. He said he thinks Powell will signal a willingness to let inflation run above its 2% target for “awhile.”

In December on “Trading Nation,” Schumacher predicted Covid-19 vaccines would dramatically boost confidence and lift Treasury yields in 2021. So far this year, the benchmark 10-year yield is up 77%. On Tuesday, it closed at 1.62%.

“Yields began this year — if you focus on the 10-year Treasury — just north of 90 basis points. It’s up about 70 basis points this year,” he noted. “So, 1.75% to 2%, I would say, pretty quickly could happen.”

Stocks and equity futures were steady Wednesday as investors assessed the economic recovery and the risk of a shift in the Federal Reserve’s policy projections. Treasury yields held near the highest levels in over a year.

Japanese stocks were little changed and China’s CSI 300 swung between gains and losses. South Korean shares retreated as Samsung Electronics Co. warned it’s grappling with the fallout from a “serious imbalance” in semiconductors globally. European and U.S. equity futures fluctuated. The S&P 500 overnight snapped a record run and the tech-heavy Nasdaq 100 posted a modest rise.

The Fed’s policy and outlook updates due Wednesday are center stage as the global recovery gains traction. Rates markets are positioned for the central bank to raise borrowing costs sooner than current guidance suggests. Higher inflation expectations have boosted bond yields and sparked a rotation from growth to value stocks. Bond investor Bill Gross predicted in a Bloomberg TV interview that inflation will rise to 3% to 4% in the coming months.

“The concern is the assets that have worked best over the last decade -- rates, credit of all kinds, and long-duration equities -- may not be the only games in town anymore,” said David Wong, investment strategist at AllianceBernstein.