U.S. government bonds weakened Friday as investor are seeking targets on riskier assets, buoyed by rising oil prices and reiteration from Fed chair Janet Yellen about the strength of the domestic economy.
Federal Reserve Chair Janet Yellen was put on the spot about whether it’s a mistake in raising interest rates in December. The Fed chair defends rate hike: ‘I certainly don’t regard it as a mistake.’
“I certainly don’t regard it as a mistake,” she said during the panel discussion at the International House in New York. “We took one step.”
In a speech late Thursday, Ms. Yellen said the U.S. economy is “on a solid course” and is “not a bubble economy.” striving to ease economic anxieties. “In December the Fed indicated that the pace of future rate hikes would be gradual,” the chairwoman said. The quarter-point hike in December was the first hike in seven years where the benchmark rate, nearly to 0, was kept at a record low. "We think that a gradual pace of rate increases will be appropriate," Yellen said. "The prospects for continued growth and progress in the labor market look good."
This speech pushed up oil prices as in turn encouraged investors seeking riskier assets.
“This week has been a bit of a drift,” said Gennadiy Goldberg, U.S. rates strategist at TD Securities. “We’ve taken cues mainly from risk sentiment, and risk sentiment has taken a lot of cues from oil.”
As investors continue to take low growth and cover inflation assets, the government bond yields have already fallen sharply this year. The slight increase Friday still leaves the yield at a low level.
Federal Reserve Bank of Atlanta’s GDPNow model forcasts a growth rate of just 0.4%, compared with 1.4% on March 24.
Although Ms. Yellen is confident in the stability of the economy, she reaffirmed that Fed is in no hurry to tighten monetary policy, under the uncertain global economy.