Long Treasurys fell for a sixth day even as Williams said the Fed can wait
The fund that holds long-term Treasurys fell 0.5% on Tuesday, September 29, a sixth straight decline, while high-yield bonds fell too and John Williams said one more rate increase may still come late this year.
Key takeaways
Long-term Treasurys fell for a sixth straight session on Tuesday.
TLT, the fund that holds Treasurys maturing in more than 20 years, fell 0.5% and touched its lowest price in 52 weeks. Volume was the highest of the prior 20 sessions. The slide began Tuesday, September 22, and over five sessions the fund is down 4.3%.
The 10-year Treasury yield was 5.26%, and the 30-year yield was 5.59%. At the short end, SHY, the fund that holds Treasurys maturing in one to three years, rose slightly.
High-yield bonds fell for a sixth straight session as well. HYG, the fund that holds high-yield corporate bonds, fell 0.2% and traded 2.5 times its typical volume of the prior 20 sessions. LQD, the fund that holds investment-grade corporate bonds, fell 0.1% on its heaviest volume of the prior 20 sessions.
Long Treasurys slid; high-yield followed; short Treasurys held
- TLT · 95.72
- HYG · 98.36
- SHY · 99.8
New York Fed President John Williams said in Buffalo that the Fed can wait.
"With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information," he said.
The wait does not mean the Fed is done raising rates. On Wednesday, September 16, the Fed raised its target range by a quarter of a percentage point, to 3.75% to 4%. One further increase, he said, may still be appropriate late this year if the economy matches his forecast.
He called 3.7% inflation "unquestionably too high," against the Fed's 2% goal, and he now expects somewhat larger and longer-lasting effects from energy prices on inflation.
In the markets that bet on the Fed's next move, the odds of an October increase were as high as 70% on Monday and 60% on Tuesday. After Williams spoke, those odds were just over 50%.
The Conference Board said consumer confidence fell to 81.9 in September, from a revised 88.6 in August. Average inflation expectations for the next year rose to 6.1%, and 68.4% of people in the survey expect interest rates to rise, up 5.2 percentage points from August.
August job openings were 7.079 million, 146,000 below the 7.225 million economists expected. The Bureau of Labor Statistics called the count little changed.
Apple's 2.7% drop outweighed a 3.3% rise in Meta, and SPY, the fund that tracks the S&P 500, fell 0.2% on volume among the lightest of the past 20 sessions.
Wednesday's PCE price index, the inflation measure the Fed prefers, is due at 8:30 a.m. Eastern. It is expected to show little if any change in the year-over-year rate, which is already well above the Fed's 2% goal. On our reading, a number that barely moves would not remove the case for another increase.
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Frequently asked questions
Is the Fed done raising rates?
Williams said one further increase may still be appropriate late this year if the economy matches his forecast.
How far did long Treasurys fall?
The fund that holds Treasurys maturing in more than 20 years fell 0.5% on Tuesday and is down 4.3% over five sessions.
What happened to bets on an October increase?
After Williams spoke, the odds of an October increase were just over 50%, down from 60% on Tuesday and as high as 70% on Monday.
Did credit and short Treasurys move with the long end?
High-yield bonds fell 0.2% and investment-grade bonds fell 0.1%, while short-term Treasurys rose slightly.
