Daily Market Color

Rates Turn Lower After Fed Chair Powell’s Monetary Policy Update

Rates fall after Fed Chair Jerome Powell’s monetary policy update
Treasury yields turned lower after Powell commented that inflation is still “soft.”  Treasury yields and swap rates fell 1-3 bps across the curve – the 10-year UST yield closing ~2 bps lower at 1.34%.  Major equity indices closed moderately higher – the S&P 500 and DJIA rising 0.1% and 0.05%, respectively.
Fed Chair Powell does not anticipate any changes to monetary policy in the short term
In his speech before the Senate Banking Committee, Powell confirmed the Fed will allow inflation to run above the 2% threshold before tightening policy.  He added, “Following large declines in the spring, consumer prices partially rebounded over the rest of last year. However, for some of the sectors that have been most adversely affected by the pandemic, prices remain particularly soft.”  He expects price pressures to remain muted for some time, as the economic outlook remains “highly uncertain.”
Short-term Treasury yields remain historically low
Longer-term Treasury yields have climbed significantly in the past month, but short-term rates have remained near zero.  The spread between short-term and long-term yields have risen to new highs as the US Treasury works to reduce its $1.6 trillion cash balance in the coming months while the Fed leaves its accommodative policy in place.  Today’s Treasury auction highlighted this issue, after two-year notes were sold at a premium above 100 cents on the dollar for the first time.
Consumer confidence index rose to 91.3 this month from 88.9 in January
Sentiment has risen over the past weeks due to the incoming stimulus bill and falling COVID-19 cases. 

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