Treasuries Keep a Grip on Gains as Omicron May Delay Fed Hikes -Breaking
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(Bloomberg) — Treasury yields fluctuated close to Friday’s lows as investors stood by bets the Federal Reserve will think twice about hiking interest rates amid concern over the impact of the omicron variant on the recovery.
The two-year yield is right where it ended last week’s holiday-abbreviated session, while rates on longer-term securities are only a few basis points higher since then. Fed futures signal the first hike may not happen until September next year, compared with last Wednesday’s pricing which saw traders plump for June.
The investor caution was mirrored in other asset classes with muted rebounds seen in Asian and European equities this week and well below levels seen before Friday’s plunge. On Monday, the was unable to reverse all of its post Thanksgiving losses.
Fed Chair Jerome Powell, in his first public remarks on the new variant, did little to prevent speculation that its impact might slow rate increases, saying developments pose risks to the central bank’s employment and inflation mandates. The new variant has prompted concern that the government will erode consumer confidence and undermine corporate confidence as they have acted quickly to place travel restrictions at a time when many countries are starting the holiday season.
“With each day of uncertainty, some economic damage is being dealt,” said Eugene Leow, rates strategist at DBS Bank Ltd. in Singapore. “It will be difficult to reclaim 1.6% for 10-year yields until we get clarity on omicron.”
Powell: Omicron Increases Economic Risks and Inflation Uncertainty
The 10-year rate was little changed at 1.50% Tuesday, well below Monday’s peak of 1.56% and closer to Friday’s 1.47% low. The yield on 2-year Treasuries increased two basis points, to 0.51%.
U.S. yields slid Monday following the release of Powell’s written remarks, which were published ahead of a Congressional appearance Tuesday. That was even as President Joe Biden said he doesn’t expect the U.S. will reintroduce lockdowns.
Markets continue to be nervous as investors await more information on the omicron. The alert was raised by a South African physician who has seen mild symptoms in those infected, but the World Health Organization warns that it may cause a new surge of infections.
(Updates throughout)
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