U.S. Treasury yields fell on Monday as investors remained focused on remarks from Federal Reserve Chair Jerome Powell that signaled the possibility of more interest rate hikes to tackle inflation.
The yield on the benchmark 10-year Treasury yield was down at 4.2217%. The yield on the 30-year Treasury note dipped to 4.2670%.
Bond prices have an inverse relationship with interest rates.
Traders continued to digest hawkish comments from the head of the Federal Reserve last week.
At the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming, Powell said that inflation remains too high and that the U.S. central bank is ready to continue hiking rates to tame persistently high prices.
While Powell said the Fed could be flexible, he said it still has further to go to fight inflation.
“Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said in prepared remarks. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
A recent surge took 10-year yields to their highest level since November 2007 last week, as investors grappled with a surprisingly resilient U.S. economy and the possibility that sticky inflation could force the central bank to keep interest rates higher for longer.
With inflation steadily decreasing — but still above target — in many major economies, attention is increasingly turning to how central bankers will respond to a deteriorating growth outlook.
Last Wednesday, economic data disappointed on both sides of the Atlantic. In the U.S., S&P Global’s flash U.S. Composite Purchasing Managers’ Index fell to a six-month low of 50.4 in August, down from a reading of 52 in July.
Both subindexes — the services index and manufacturing index — fell month on month. The manufacturing index slipped to 47.5 from 50. A reading below 50 suggests activity contracted. The services index slipped from 52.3 in July to 51 in August.
In terms of economic data, there are no major data releases expected Monday.
Later in the week, the U.S. Labor Department is set to release nonfarm payrolls showing the pace of jobs and wage growth, which could guide the Fed on how to proceed with its monetary policy path.
The Treasury is expected to auction three-month and six-month bills as well as two-year and five-year notes.
