After turning lower over the course of morning trading, treasuries showed a substantial move back to the upside following remarks by Federal Reserve Chair Jerome Powell.
Bond prices moved sharply higher in late-day trading, closing firmly positive. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 4.5 basis points to 3.703 percent after reaching a high 3.798 percent.
The surge by treasuries came as Powell’s remarks provided further evidence the central bank plans to slow its aggressive pace of interest rate hikes as soon as next month.
Powell noted during a speech at a hybrid Brookings Institution event that the full effects of the Fed’s rapid rate increases have yet to be felt.
“Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said in prepared remarks. “The time for moderating the pace of rate increases may come as soon as the December meeting.”
However, the Fed chief argued the timing of a slowdown in the pace of rate hikes is less significant than how much further the central bank will need to raise rates and how long it will be necessary to hold policy at a restrictive level.
“It is likely that restoring price stability will require holding policy at a restrictive level for some time,” Powell said. “History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”
The Fed’s next monetary policy meeting is scheduled for December 13-14, with CME Group’s FedWatch Tool currently indicating a 72.3 percent chance of a 50 basis point rate hike and a 27.7 percent chance of a fifth straight 75 basis point rate hike.
The downturn shown by treasuries earlier in the day came as traders awaited Powell’s remarks while digesting a mixed batch of U.S. economic data.
While payroll processor ADP released a report showing slower than expected private sector job growth in November, the Commerce Department released a separate report showing an unexpected upward revision to GDP growth in the third quarter.
Trading on Thursday may be impacted by another batch of economic data, including reports on weekly jobless claims, personal income and spending and manufacturing activity.