Yellen's Inflation Tolerance Remarks Push US Treasury Yields Higher
Investors Sell Long-Term Bonds, Buy Short-Term Bonds
Stock Market Rises on Confirmed Economic Stimulus Commitment
[Asia Economy New York=Correspondent Baek Jong-min] After U.S. Treasury Secretary Janet Yellen emphasized the need for a $1.9 trillion economic stimulus, concerns over inflation spread, causing U.S. Treasury yields to surge once again.
As of 10 a.m. local time on the 19th, the 10-year U.S. Treasury yield stood at 1.33%, marking the highest level in a year. The 10-year yield had recently fluctuated around 1.3%, but on this day, the upward trend became more pronounced. The 30-year yield also rose to the 2.1% range.
The sell-off in long-term government bonds intensified due to inflation concerns. In contrast to long-term bonds, the yields on 3-month and 2-year Treasury notes either declined or remained unchanged. Rising bond yields indicate falling bond prices.
The day before the rise in bond yields, Secretary Yellen's interview with CNBC, in which she mentioned tolerating inflation, was cited as a reason.
Secretary Yellen stated, "Inflation has been very low over the past decade. While inflation is a risk factor, the Federal Reserve (Fed) has the tools to address the problem," adding, "The greater risk is the permanent damage to people's lives and livelihoods caused by COVID-19."
She reiterated, "It is very important to push for a large package to alleviate the (American people's) pain." The ruling Democratic Party in the U.S. plans to pass the stimulus bill in the House of Representatives next week.
As U.S. Treasury yields continue to rise, concerns about early tapering (reduction of asset purchases) are growing. Although Fed Chair Jerome Powell has repeatedly stated that there will be no early tapering, the market is not fully accepting this.
Sebastian Galy, investment strategist at Nordea Asset Management, forecasted, "Due to the improvement in U.S. retail sales in January and the $1.9 trillion stimulus package, the Fed and ECB are more likely to initiate early tapering."
However, he expected the Fed to try to control inflation by extending asset purchases but predicted that the possibility of early tapering would increase further in the second half of the year.
Unlike the bond market, the stock market welcomed Secretary Yellen's remarks. Her commitment to economic stimulus stimulated investor sentiment.
On this day, major New York stock indices all rose, recovering from the previous day's weakness. The Dow Jones Industrial Average increased by 0.3%, the S&P 500 by 0.25%, and the Nasdaq by 0.55%.
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