NEW YORK, Feb 11 (Reuters) - U.S. Treasury yields rose on Tuesday after Federal Reserve Chair Jay Powell said the U.S. economy is resilient and maintained that current interest rate policy remains appropriate.
In his twice-a-year update to Congress, Powell said that through the second half of 2019 “the economy appeared resilient to the global headwinds that had intensified last summer,” as economic activity increased further and the labor market strengthened.
“Powell’s remarks had nothing new and toed the party line,” said Jon Hill, U.S. rates strategist at BMO Capital Markets. “Rates are in accommodative territory. They’re on hold for the foreseeable future.”
Yields were higher on Tuesday, without signaling any change in expectations of an adjustment to interest rate policy.
Powell signaled he sees no reason to adjust U.S. interest rates unless new developments cause a “material reassessment” to the current outlook. However, he added: “We are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.”
“I don’t think the Committee would move in an insurance fashion in response to the coronavirus. They would need to see a sharp tightening of global financial conditions and/or a feed-through into the hard data before they move. And that’s reasonable, no one really knows how this is going to play out,” said Hill.
The 10-year yield was last up 3.8 basis points to 1.585% - it last recorded a positive day on Feb. 5. The two-year yield was up 3.8 basis points to 1.415% and the 30-year bond yield was up 2.7 basis points to 2.048%.
Yields across maturities have fallen in 2020 as investors nervous about the economic fallout of the coronavirus have continued to bolster demand for safe-haven assets. The 10-year yield has fallen 17.01% since Dec. 31.
After weekend headlines showed that the death toll from the coronavirus had surpassed that of the 2002/2003 Severe Acute Respiratory Syndrome (SARS) epidemic, strong risk-off demand Monday inverted one measure of the yield curve.
The spread between yields of three-month and 10-year Treasuries remained inverted on Tuesday at minus 0.8 basis points. The spread was below zero for several days last week.
Later on Tuesday, the Treasury Department will auction off $38 billion in new three-year notes appetite for which is expected to be strong given the continued safe-haven demand. (Reporting by Kate Duguid Editing by Alistair Bell)