Yields climb as Fed’s Waller pushes back on Dovish rate bets

Treasury yields rose and the dollar strengthened against most of its major peers after Federal Reserve Governor Christoper Waller pushed back on bets the US central bank was nearing the end of its hiking cycle.

Benchmark 10-year Treasury yields climbed seven basis points to 3.88%, reopening after a holiday, after Waller said the Fed has got a ways to go before its stops hiking. A gauge of the greenback rose 0.2%. Waller also said the market got “way out in front” over the unexpected cooling in inflation.

The market is reacting after getting “a reminder the Fed isn’t going to change its view on one good CPI outcome,” said Jason Wong, a strategist at Bank of New Zealand in Wellington.

The dollar’s advance comes after a gauge of the currency slid 3.5% last week, its biggest decline since the early days of the pandemic, as traders trimmed bets on aggressive Fed hikes after US inflation was slower in October than economists forecast. Treasury yields also tumbled and stocks surged amid optimism the Fed wouldn’t need to increase rates as much as anticipated.

US two-year yields climbed six basis points to 4.40%, after sliding 33 basis points last week. Australian 10-year yields climbed eight basis points as traders across the Asia-Pacific region digested the potential that last week’s decline was excessive.

Fed speakers

Fed speakers this week are likely to push back on last week’s market reaction as they want to tighten financial conditions, not loosen them, Commonwealth Bank of Australia strategists wrote in a note to clients. The dollar can partly unwind last week’s decline as they were out of proportion to the size of the miss in inflation, they said.

Fed Vice Chair Lael Brainard is set to speak on Monday as part of a week featuring many central bank appearances. Producer price data are due due to be published on Tuesday.

Investors will also be looking to the outcome of a meeting between US President Joe Biden and China’s Xi Jinping as leaders from around the world gather at the Group-of-20 summit in Indonesia.