Treasuries Extend Upward Move In Reaction To Powell Comments

By | May 14, 2020
Treasuries Extend Upward Move In Reaction To Powell Comments

Treasuries moved moderately higher during trading on Wednesday, extending the notable upward move seen in the previous session.

Bond prices moved to the upside early in the session and remained in positive territory throughout the day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.9 basis points to 0.649 percent.

The strength among treasuries came as traders reacted to Federal Reserve Chairman Jerome Powell’s comments about the economic outlook during a webcast hosted by the Peterson Institute for International Economics.

Powell warned the coronavirus crisis raises longer-term concerns that could result in an extended period of low productivity growth and stagnant incomes.

The remarks from Powell mirror recent comments from other economists, who have predicted the economy will not experience the V-shaped recovery some investors seem to be expecting.

Powell said the central bank may take additional steps to support the economy but is not considering adopting negative interest rates.

“At the Fed, we will continue to use our tools to their fullest until the crisis has passed and the economic recovery is well under way,” Powell said.

However, Powell signaled the Fed remains reluctant to impose negative interest rates, which President Donald Trump has repeatedly called on the central bank to enact.

“I know there are fans of the policy, but for now it’s not something that we’re considering,” Powell said. “We think we have a good toolkit and that’s the one that we will be using.”

The Fed Chief noted the economic outlook is “both highly uncertain and subject to significant downside risks” and suggested it may be necessary for Congress to provide additional stimulus.

Powell’s comments come a day after House Democrats unveiled a new $3 trillion coronavirus relief bill that is likely to face considerable opposition in the Republican-led Senate.

In U.S. economic news, the Labor Department released a report showing U.S. producer prices plunged by much more than expected in the month of April.

The Labor Department said its producer price index for final demand tumbled by 1.3 percent in April after edging down by 0.2 percent in March. Economists had expected prices to drop by 0.5 percent.

The steep drop by the producer price index for final demand reflected the largest decrease since the index began in December 2009.

Excluding food and energy prices, core producer prices fell by 0.3 percent in April after inching up by 0.2 percent in March. Core prices were expected to be unchanged.

Meanwhile, the Treasury Department revealed its auction of $22 billion worth of thirty-year bonds attracted average demand.

The thirty-year bond auction drew a high yield of 1.342 percent and a bid-to-cover ratio of 2.30, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.32.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

The Treasury revealed earlier this week that its auctions of $42 billion worth of three-year notes and $32 billion worth of ten-year notes both attracted above average demand.

Trading on Thursday may be impacted by the Labor Department’s latest weekly jobless claims report, with economists expecting new claims to show another decline but remain at an elevated level.