US: Treasury yields to grind higher on more persistent inflation – Charles Schwab

Treasury yields are rising on speculation that the Federal Reserve soon will announce plans to taper its bond-buying. However, economists at Charles Schwab expect higher yields due to sticky inflation rather than Fed’s tapering.

Fed expected to announce tapering soon

“Despite concerns that the Fed is pulling back on its bond-buying program and may raise rates sooner than expected, policy is still accommodative. Growth and inflation expectations may have peaked, but are likely to settle at an above-average level. Higher growth and inflation expectations are a catalyst for higher long-term yields.”

“We see the potential for yields to move higher, due more to inflation becoming ‘stickier’ versus the Fed reducing the pace of its bond buying program.”

“Prices for longer-term bonds are generally more sensitive to changes in interest rates relative to shorter-term bonds, and as a result may experience greater declines in price.”