Longer-dated Treasury yields extended Wednesday's sharp rise after the Fed's decision to hold interest rates steady raised fears that inflation — already running well above the Fed's target — could climb further.
The decision to leave policy on hold drew dissents from three of the 12 FOMC members, who had wanted a quarter-percentage-point hike instead. Fed Chairman Kevin Warsh's preference for less forward guidance has left traders even less certain of the Fed's next move.
Warsh noted that bond yields had risen notably since the Fed's last policy meeting, reflecting investors pricing in future rate increases. He welcomed that move, while adding that it did not mean the central bank needed to ratify it with action of its own.
A recent uptick in oil prices pushed yields higher ahead of the Fed meeting, as fighting resumed in the U.S.-Iran war. Fed funds futures traders are now pricing in 64% odds of a hike at the Fed's September meeting.
The interest-rate-sensitive 2-year Treasury US2YT=RR yield rose 0.17 basis points to 4.238% while the yield on benchmark U.S. 10-year notes US10YT=RR increased 4.51 basis points to 4.667%.
Thirty-year yields US30YT=RR were last up 6.62 basis points at 5.2092% and reached 5.2444%, the highest since mid-2007.
The Japanese yen rallied suddenly on Thursday, sparking speculation that Japanese authorities had stepped in to steady the currency after it weakened to a 40-year low against the U.S. dollar.
“The further it falls the more likely intervention becomes as an explanation," said Nick Rees, head of macro research at Monex Europe. "It’s a fairly sizeable fall and there’s no other obvious catalyst and the timing makes sense, coming at month-end and after weak U.S. data. Although we won’t know for certain for a while.”
The Bank of Japan is expected to keep rates steady at 1% on Friday. After raising rates in June, a second successive hike would be unusual.
The yen JPY= was last up 2.53% against the greenback at 159.34 per dollar.
The dollar index =USD, which measures the U.S. currency against a basket of peers including the yen and the euro, fell 0.84% to 99.94, with the euro EUR= up 0.57% at $1.153.
Sterling GBP= strengthened 0.73% to $1.3466.
The Bank of England kept interest rates on hold as expected, but a third policymaker backed a rate hike, citing renewed conflict between the United States and Iran.
Spot gold XAU= rose 1.11% to $4,110.19 an ounce.
MSFT•
