Rising bond yields could be tied to recent comments from Federal Reserve officials

Published Tue, Aug 10 20216:02 PM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

Treasury yields, which have been mystifying the market all summer , are now moving higher on what seems to be a clear message from some Federal Reserve officials: They are getting ready to move away from easy policy. Since Fed Vice Chairman Richard Clarida spoke last Wednesday , the yield on the benchmark 10-year Treasury has moved higher by more than 20 basis points, or 0.20%. Bond yields move opposite price. Other central bank officials, including Atlanta Fed President Raphael Bostic , have also recently spoken in favor of tapering the central bank's $120 billion a month bond-buying program. The 10-year Treasury yield was at 1.35% late Tuesday. As of late, the yield had been moving strangely lower on a variety of factors, some technical and some reflecting concerns about Covid and slowing growth. Now the 10-year yield is moving higher in reaction to Fed speakers and better economic data. It's also rising ahead of Wednesday's Treasury auction. Comments that 'turned the market' Clarida is important since he is viewed by the market as a dove at the center of the Fed, and his comments were direct. The vice chairman said he expects the Fed's economic goals could be met by the end of next year, and the central bank could begin raising interest rates in 2023. He also said there are chances for an upside surprise in inflation, and he reportedly said that he could support trimming the Fed's bond purchases later this year if the economy continues to improve as expected. In his comments last week, Clarida gave no timeline on the tapering of the Fed's $120 billion a month bond buying program. "Those comments turned the market," said George Goncalves, head of U.S. macro strategy at MUFG. He said the 10-year yield, which moves opposite price, was just touching its recent low of 1.12% for a second time before Clarida's comments. Two pivotal tests for the 10-year Treasury yield Two important tests for the 10-year on Wednesday. First, the consumer price index will be released at 8:30 a.m. ET, and if it is higher than the half percent increase expected, yields could continue higher. At 1 p.m., there is also a $41 billion 10-year auction, which could also influence the direction of rates depending on demand. But for now, it's the Fed driving the market. Clarida's comments came days after Fed Governor Christopher Waller said he could see the central bank begin tapering its bond purchases as early as October. On Monday, Atlanta Fed President Bostic said he could see a fourth-quarter tapering if the labor mar