NEW YORK - Shifting views on the Federal Reserve's monetary policy trajectory are roiling the U.S. Treasury market, as investors gauge how close the central bank is to pulling back from its aggressive monetary policy tightening.
“The market needs to really see a slowing in the data before it believes the Fed is on a pause,” said Leslie Falconio, head of taxable fixed income strategy at UBS Global Wealth Management. “Every time the Fed pauses, yields come down, but the market is not convinced they’re quite there yet." There's plenty of evidence that financial conditions, which reflect the availability of credit in the economy, have tightened in recent months.Credit market spreads have widened as investors demand a higher yield on riskier assets, such as corporate bonds. Real yields, which show what investors stand to earn on Treasuries when inflation is stripped out, stand near 15-year highs, while the Goldman Sachs financial conditions index was recently at its highest level in nearly a year.
Data on Thursday showed U.S. consumer prices increased slightly more than expected in September, following a strong jobs report last week.