Treasury yields mixed as investors digest Warsh’s first Fed meet

Treasury yields were mixed on Thursday as investors digested the conclusion of Kevin Warsh’s first meeting as chair of the Federal Reserve.

The yield on the 10-year U.S. Treasury note — the key benchmark for U.S. government borrowing — was down more than 2 basis points at 4.441%.

The 2-year Treasury note yield, which more closely tracks short-term Federal Reserve interest rate policy, rose 2 basis points to 4.183%. The longer-dated 30-year Treasury bond yield fell more than 6 basis points to 4.864%.

One basis point is equal to 0.01%, and yields and prices move in opposite directions.

Yields took a slight leg lower after another batch of economic data was released.

Initial jobless claims for the week ended June 13 came in just above expectations at 226,000. That was a 4,000 increase from the previous week and above the 225,000 economists polled by Dow Jones were expecting. Additionally, the Philadelphia Fed manufacturing index jumped to 10.3 in June, rising from -0.4 in May and better than the consensus estimate of 9.8.

“The labor market is seeing some slight stress with jobless benefits being applied for at an elevated rate since the start of the Iran bombing on February 28,” said Chris Rupkey, FWDBONDS chief economist.

“Now that the peace deal has been signed we expect the uncertainty factor will diminish and that companies will hold onto the workers they have,” he added. “The economy is facing no material downside risks at present so Fed policymakers can hold rates steady and do nothing.”

Kevin Warsh‘s first meeting as Federal Reserve chairman concluded Wednesday with no change in interest rates and a nod to possible hikes ahead. The meeting also saw the removal of key language indicating a bias toward future cuts within a dramatically shorter policy statement.

The Fed kept the benchmark federal funds rate unchanged and anchored at 3.5%-3.75%. 

Complicating the picture was Warsh’s decision to abstain from submitting a rate forecast. He confirmed at a news conference following the decision that he had declined to share a forecast and is forming task forces to overhaul major Fed operations.

“I did not submit a dot for me,” Warsh said. “It’s not helpful in the conduct of policy.”

Nevertheless, market commentators felt Warsh’s first address ran smoothly.

“What was interesting from Warsh’s first FOMC outcome is a clear message to markets that the Federal Reserve sees inflation as an issue to be solved, and if they do identify an inflation problem, they are prepared to act,” ING’s rates analysts wrote in a note published Thursday. 

“Not exactly what was expected when President Trump gave the job to Warsh. But it does add a proper layer of credibility to Warsh’s FOMC.”  

Byron Anderson, head of fixed income at Laffer Tengler Investments,…