TREASURIES-U.S. Treasury yields rise further after Powell news

BY Reuters | ECONOMIC | 11/23/21 05:59 AM EST

By Stefano Rebaudo

Nov 23 (Reuters) - U.S. Treasury yields edged higher on Tuesday amid rising bets for a quicker tightening of Fed's monetary policy after President Joe Biden tapped Fed-Chair Jerome Powell to lead the central bank for a second term.

The yield on 10-year Treasury notes rose one basis point at 1.634%, not far from a 2021 high of around 1.7760% hit in end-March. Yields are up by more than 7 bps since Powell's news in the previous session.

The short-end of the curve was the hardest hit. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was flat at 0.63% after hitting its highest level since early March 2020.

U.S. inflation-protected bond yields also rose for a second consecutive session with ten-year yields holding near minus 1%.

Breakeven inflation rates or the difference between nominal and inflation-protected yields slipped signalling markets expected Powell to pursue winding down easy monetary policy.

Investors are betting that newly renominated Federal Reserve Chairman Jerome Powell will need to step up the pace the central bank is normalizing monetary policy to better grapple with surging consumer prices.

President Biden "did not choose the candidate who might implement his preferred (expansionary) monetary policy; instead, he appointed the incumbent who has pursued his office without fault," Commerzbank analysts said. (Reporting by Stefano Rebaudo, editing by Saikat Chatterjee)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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