30-year U.S. government bond yield edges back above 3%

Treasury prices fell Tuesday, pushing up yields, a day ahead of minutes from the Federal Reserve’s August meeting and an annual gathering of global central bankers and monetary policy experts later in the week that will feature a speech by Fed Chairman Jerome Powell.

The 10-year Treasury note yield TMUBMUSD10Y, +0.54% bounced up 2.3 basis points to 2.846%, after falling 5.1 basis points on Monday to its lowest since May 29.

The 2-year note yield TMUBMUSD02Y, +0.80% was up 1.7 basis points to 2.608%, while the 30-year bond yield TMUBMUSD30Y, +0.35% rose 2.1 basis points to 3.004%. Bond prices move in the opposite direction of yields.

With little economic data on the docket, investors later this week will be on the alert for headlinesout of Jackson Hole. The proceedings will begin Thursday, with Powell slated to speak Friday at 10 a. Eastern. Before that, investors will see the minutes from the Federal Open Market Committee’s August meeting on Wednesday.

Given that market participants have already priced in three to four hikes this year, and two have already happened, investors say Powell is unlikely to use the occasion to give further guidance on the rates outlook this year. Yet President Donald Trump’s recent complaints over the Fed could put a wrench into its policy communications, as investors debate whether the White House’s political pressure will unduly influence Powell. On Monday, Trump said he was annoyed that Powell had raised rates.

“I don’t think the Fed will alter their path in light of Trump’s repeat of his view of where short term rates should be even though the real rate is still negative…Simply, if the inflation data dictates higher rates and the Fed instead buckles to political pressure and doesn’t respond, long-term rates will tighten for them,” wrote Peter Boockvar, chief market analyst for the Bleakley Advisory Group.

Dallas Fed President Robert Kaplan said in an essay he would prefer to see three to four more rate increases until the fed-funds rate reached the so-called neutral level, where monetary policy is neither accommodative nor stimulative, before the central bank paused its rate increase cycle.

As bond yields rose, stocks climbed for the fourth straight session. The S&P 500 rose 0.2%, notching an intraday record at 2,873.23.

In keeping with the positive tone in risky assets, Italian bonds rallied after Moody’s said it would extend the deadline for its review on a potential downgrade. The ratings firm rates Italy at Baa2, two rungs above junk. The 10-year yield for Italian government paper TMBMKIT-10Y, -2.27% or BTPs, slid 7.8 basis points to 2.977%.

Investors fear a downgrade would bring the country’s bonds in touching distance of junk, sparking fears that falling into the dicey credit bucket would prompt a forced selloff from more conservative investors like insurance companies.

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