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U.S. Government Bond Yields Rise After Fed Policy Shift

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08/27/2020 | 11:22am EDT

By Sebastian Pellejero

U.S. government bond yields reversed an early decline on Thursday after the Federal Reserve said it would drop its longstanding practice of pre-emptively lifting interest rates to stave off rising inflation.

The yield on the benchmark 10-year Treasury note recently traded around 0.719%, up from 0.686% at Wednesday's close. Bond yields rise when prices fall.

The 10-year yield initially fell after Fed Chairman Jerome Powell said central bank officials unanimously approved a new approach of making up for periods of low inflation by seeking subsequent periods of higher inflation. That boosted many investors' expectations that the Fed will hold rates low for a long time to come.

The yield changed course after Mr. Powell said no formula would dictate the central bank's actions. Some investors said the absence of details on methodology limited the market reaction.

"The market would've liked for the Fed to give a target for when the central bank would act, but Chairman Powell stopped short of that," said Kevin Giddis, chief fixed income strategist at Raymond James Financial. "[The central bank] could let inflation run well over 2% before we average 2% over time."

Other investments tied to interest rates also whipsawed. The WSJ Dollar Index, which measures the U.S. currency against a group of others, initially declined before recently climbing 0.2%.

Gold prices also climbed after Mr. Powell's announcement before reversing course to recently trade down 1.1% at $1,932.10 a troy ounce, according to FactSet, Expectations for ultralow interest rates have helped carry the metal to fresh highs recently, and it struggles to compete with yield-bearing investments when rates rise.

Write to Sebastian Pellejero at sebastian.pellejero@wsj.com

 


Stocks mentioned in the article
ChangeLast1st jan.
EURO / US DOLLAR (EUR/USD) 0.24% 1.18575 Delayed Quote.4.96%
GOLD 0.71% 1924 Delayed Quote.25.43%
PLATINUM 1.34% 887 Delayed Quote.-11.00%
RAYMOND JAMES FINANCIAL -0.27% 78.6 Delayed Quote.-12.20%
SILVER 1.22% 25.0425 Delayed Quote.36.97%
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