U.S. Treasury yields climb after Fed Chairman Powell’s remarks about inflation

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May 2, 2019 1:30pm Nasdaq:IEF

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From Thomas Franck & Silvia Amaro: U.S. government debt yields rose on Thursday as investors pored over the Federal Reserve’s latest statement as well as commentary from Chairman Jerome Powell.

At around 11:26 a.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was 5 basis points higher at 2.55%, while the yield on the 30-year Treasury bond was up at 2.944%.

The Fed on Wednesday said that it is keeping interest rates unchanged, though Chair Powell added that officials saw a decline in inflation in the first quarter as simply “transcient”

The central bank held its benchmark rate in a target between 2.25% and 2.5%, matching investor expectations.

“We think our policy stance is appropriate at the moment and we don’t see a strong case for moving in either direction,” Powell told CNBC’s Steve Liesman. “We say in our statement of longer-run goals and monetary policy strategy that the Committee would be concerned if inflation were running persistently above or below 2%.”

“And in this case, as we look at these readings in the first quarter for core, we do see good reasons to think that some were or all of the unexpected decrease may wind up being transient,” he added.

A key issue for the Fed, inflation threatens the value of government debt by wearing away the purchasing power of their fixed payments. Price action is often cited by the central bank as evidence when it decides to adjust borrowing costs to try to cool down the economy.

The Fed chief’s comments also appeared to dispel investor speculation that it could move to cut rates later this year. Fed officials have historically viewed 2% inflation as a level consistent with that of a healthy economy and will raise or cut interest rates to cool or spur the economy as it sees fit.

The iShares 7-10 Year Treasury Bond ETF (IEF) was trading at $105.28 per share on Thursday afternoon, down $0.36 (-0.34%). Year-to-date, IEF has gained 0.40%, versus a 9.32% rise in the benchmark S&P 500 index during the same period.

IEF currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #15 of 28 ETFs in the Government Bonds ETFs category.

This article is brought to you courtesy of CNBC.

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