WASHINGTON: Bond investors will zero in on Kevin Warsh’s Jackson Hole speech this week, with a further sell-off in long-dated Treasuries at stake as markets look for clues on the Federal Reserve (Fed) chairman’s response to persistent inflation and fiscal concerns.
Long-term US bonds have come under pressure in recent weeks, with traders pushing the yield on 30-year bonds to the highest level since 2007 at one point.
The Treasury Department responded by announcing plans to at least double the size of buybacks of longer-dated securities, providing only temporary relief from the sell-off.
The whipsaw in rates adds to the importance of Warsh’s speech at the Jackson Hole Economic Policy Symposium last Friday.
Traders will be looking for signals on the Fed’s reaction function, particularly how policymakers plan to respond to inflation that has been stubbornly above the central bank’s 2% target and a weakening fiscal picture, with the national debt topping US$40 trillion.
Warsh himself has provided little forward guidance since taking the post in May. His appearance after the last policy meeting sparked a massive sell-off, underscoring the market sensitivity surrounding Friday’s remarks.
“More of the same, I think, would be seen as a disappointment to the markets, which could exacerbate the long-end sell-off that we have seen,” said Molly Brooks, US rates strategist at TD Securities.
The forces that have weighed on the market remain in place, including fiscal concerns, inflation and uncertainty over how the Fed will respond, said Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Company.
“The fundamental reasons that long-term rates went up are still there,” she said. — Bloomberg
