We observe that bond yields pick up again before Powell and NFP. The yield on the US 10-year bond reached 1.50% and ended the day around 1.47%. US bond yields soared after President Joe Biden said the country would have a large enough supply of coronavirus vaccine to vaccinate every adult in the country by the end of May. It is also reported that the European Central Bank does not see the need for a drastic step to curb the latest developments in the bond market. Yields increased even after such a headline.
Powell will speak today and is expected to address the recent change in the bond curve. Before this; We shared that the Fed could focus on the long-term side of the yield curve by making more purchases in the long run as a policy response. Another option is to flatten the yield curve by converting short-term and long-term interest rates by making a "twist", that is, selling t-bill and buying in the long term. The side effects of increasing interest rates with concentrated sales in the bond market will be harmful at a stage where economic balancing is not complete, so the Fed may be expected to focus on this issue more seriously. Powell could possibly signal the direction of the policy, but a detailed plan will probably not disclosed prior to FOMC. On the other hand, we see that the ECB is not yet in the direction of purchasing more bonds, despite the warnings from within the bank. Adjusting maturity structures may also be the case for the ECB. There, the economic recovery is slower and will continue at a slower pace compared to the US.
NFP, important data of the week, is coming tomorrow. 200K employment growth is expected in the headline. The ADP, which has a weak relationship with the NFP, was realized at the level of 117K. February also coincides with a period when winter weather affects most of the country and activity is limited. There may be some recovery from the weak 49K increase in January, but key indicators will continue to point to weakness in the labor market. The illusion created by the participation rate and prolonged unemployment should not be overlooked in the decline in the unemployment rate. The condition of 10-year bond yields is currently the main factor affecting the general condition of the markets. We will consider whether Powell and NFP will provide short-term relief in bond yields.
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