Treasuries Show Substantial Move Back To The Upside Amid Recession Worries

Following the pullback seen in the previous session, treasuries showed a substantial move back to the upside during trading on Wednesday.

Bond prices moved sharply higher early in the session and remained firmly positive throughout the day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled 15.1 basis points to 3.156 percent.

Treasuries once again benefited from their appeal as a safe haven amid concerns about inflation, interest rates and a possible recession.

In a research note, Citigroup put the odds of a global recession at 50 percent, citing signs of consumers pulling back on spending.

“The experience of history indicates that disinflation often carries meaningful costs for growth, and we see the aggregate probability of recession as now approaching 50%,” said Citigroup.

Treasuries held on to strong gains as Federal Reserve Chair Jerome Powell appeared before the Senate Banking Committee to deliver his semiannual monetary policy testimony.

Powell began his prepared remarks by highlighting the Fed’s strong commitment to bringing inflation back down to the central bank’s longer-run goal of 2 percent.

“At the Fed, we understand the hardship high inflation is causing,” Powell said. “We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so.”

“We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses,” he added. “It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.”

Discussing the Fed’s efforts to fight elevated inflation, Powell noted the central bank has raised interest rates from near-zero levels to 1.50 to 1.75 percent over the past three meetings.

Powell reiterated the Fed anticipates ongoing rate increases will be appropriate, with the pace of the rate hikes dependent on incoming data and the evolving outlook for the economy.

Powell’s comments suggested the Fed will need to see “compelling evidence” that inflation is slowing before it begins to scale back its monetary policy tightening plans.

Despite concerns about higher rates tipping the economy into a recession, Powell argued the U.S. economy is very strong and well positioned to handle tighter monetary policy.

However, Powell later acknowledged that achieving a “soft landing” will be “very challenging” due in part to factors outside of the Fed’s control and noted a recession is “certainly a possibility.”

“It’s not our intended outcome at all, but it’s certainly a possibility, and frankly the events of the last few months around the world have made it more difficult for us to achieve what we want, which is 2% inflation and still a strong labor market,” Powell said.

The Fed Chief said the central bank will still strive to “avoid adding uncertainty in what is already an extraordinarily challenging and uncertain time.”

The Fed’s next monetary policy meeting is scheduled for July 26-27, with CME Group’s FedWatch Tool currently indicating a 90.9 percent chance of another 75 basis point rate hike.

Powell’s second day of Congressional testimony is likely to attract attention on Thursday along with the Labor Department’s report on weekly jobless claims.

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