Bonds

Treasury yields rise after Powell says no rate hikes soon unless unwelcome inflation

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Treasury yields rose slightly in volatile session on Thursday after Federal Reserve chairman Jerome Powell said the central bank will not raise interest rates just to ward off inflation risks.

The yield on the benchmark 10-year Treasury note gained 4 basis points to 1.129%, while the yield on the 30-year Treasury bond rose 6 basis points to 1.876%. Yields move inversely to prices.

"If inflation were going to move up in ways that are unwelcome, we have the tools for that and we will use them," Powell said Thursday during a Q&A session presented by Princeton University. "No one should doubt that ... When the time comes to raise interest rates, we'll certainly do that, and that time, by the way, is no time soon."

Yields were lower earlier in the day after a weaker-than-expected reading of jobless claims showed signs of a slowdown in labor market recovery due to the worsening pandemic.

First-time filings for unemployment insurance jumped to 965,000 last week, the Labor Department said Thursday. Economists surveyed by Dow Jones were looking for 800,000 new claims, up slightly from the 787,000 the week before.

"The rise in initial unemployment claims is bad news for economy the short term, but it was not unexpected," said Brad McMillan, CIO at Commonwealth Financial Network. "The economic impact will be limited by the recently passed stimulus bill, which will provide support for those laid off and help preserve confidence and purchasing power."

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Peter Orszag on what he would want to see in Biden's stimulus proposal

President-elect Joe Biden is expected on Thursday evening to unveil a stimulus plan that will include a boost to the recent $600 direct payments, an extension of increased unemployment insurance and support for state and local governments. The stimulus could be as big as $2 trillion, CNN reported.

"The market will get a look as how the stimulus effort compares to last year's $2 trillion CARES Act," Ian Lyngen, BMO's head of U.S. rates, said in a note. "The near-term upside for the economic outlook linked to greater fiscal support has been constructive on net."

The benchmark 10-year rate had climbed to a near 10-month high earlier this week after breaching the `% level to start the new year. The yield came under pressure on Wednesday after the December inflation data showed price pressure remained subdued.