Bond Report: 10-year Treasury slips from 3-week high ahead of slate of Fed speakers

What’s driving the market?

Yields rose Tuesday after a stronger-than-expected rise in October retail sales and remarks by St. Louis Federal Reserve Bank President James Bullard, who said the central bank should move to accelerate the tapering of monthly asset purchases to $30 billion a month. That would allow the process to be completed by the end of the first quarter of next year.

A sharp rise in Treasury yields at the short end of the yield curve since September has been driven by growing expectations the Federal Reserve will move more quickly than previously anticipated to tighten policy in an effort to rein in inflation. Longer-dated yields have been volatile but in a range in the past month. Some investors see the resulting flattening of the curve as warning that the Fed may move so aggressively that it causes an economic downturn, while others contend that market participants are underestimating how long-lasting inflation could prove to be.

See: This Treasury dealer says the market has it entirely wrong on the Fed and interest rates.

Investors will hear from a number of Fed policy makers Wednesday. New York Fed President John Williams is scheduled to make keynote remarks at the 2021 U.S. Treasury Market conference at 9:10 a.m. Eastern. San Francisco Fed President Mary Daly is set to participate in a discussion with Rostin Behnam, acting chairman of the Commodity Futures Trading Commission at the same event at 12:40 p.m.

Fed Gov. Christopher Waller is scheduled to talk about stablecoins at a Cleveland Fed conference on financial stability at 12:45 pm Eastern, while Atlanta Fed President Raphael Bostic is slated to deliver remarks at a Fed event on housing for vulnerable renters at 4 p.m. Chicago Fed President Charles Evans is participating in a Q&A session at the Mid-Size Bank Coalition of America event at 4:05 p.m. Eastern.

October data on U.S. housing starts and building permits is due at 8:30 a.m.

What are analysts saying?

“Firm U.S. retail sales data yesterday suggests again that consumers are not necessarily balking at higher prices and that could be another sign that there’s a bit more urgency to stamp down on inflation. This being said, our own view is that the Fed will continue to show patience,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note.

“We doubt, for instance, that it will increase the pace of tapering at the December meeting and remain skeptical that it will start to lift policy rates before it has finished reducing its bond purchases (which is currently scheduled for next June),” he said. “Hence, in the end, we fear that the Fed will fall behind the curve.”