US bond yields fall from three-month highs on demand for dollars and before Powell

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Benchmark Treasury yields fell on Wednesday, after hitting three-month highs earlier, as demand for dollars sent money into government bonds, with the market also eyeing a Federal Reserve Chairman Jerome Powell’s speech on Thursday.

* The dollar rose to a 24-year high against the yen and a 37-year high against the pound, as Japan’s dovish monetary policy and Europe’s economic woes contrast with a relatively stronger US economy.

* Investors funneled funds into the safety of Treasuries as they sought out the US currency.

* The hedging needs of companies selling debt in the corporate bond market also fell after heavy activity on Tuesday boosted returns.

* The next major focus for markets will be Powell’s speech, which will come before Fed officials enter a period of silence ahead of the central bank’s September 20-21 meeting.

* Concerns that central banks will be more aggressive than expected if energy prices rise or remain permanently high have weighed on global yields in recent weeks.

* Boston Fed President Susan Collins said Wednesday that bringing inflation down to 2% is the Fed’s “job number one,” and while it has raised rates significantly, “there is more to do.”

* Meanwhile, Fed Vice President Lael Brainard also said the central bank will keep monetary policy tight “for as long as it takes to reduce inflation.”

* The market will watch Powell’s speech for signs that the Fed may ease its hawkishness if there are more signs that prices are declining, with key consumer price inflation data for August to be released on Tuesday.

* Markets expect the Fed to raise rates another 75 basis points at its September 20-21 meeting, which would take the fed funds rate into the 3.0%-3.25% range.

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* Yields on 10-year notes traded at 3.267%, having earlier hit 3.365%, the highest level since June 16. They have risen from a four-month low of 2,516% on August 2, but remain below the 11-year high of 3,498% reached on June 14.

* The two-year yield was trading at 3.450%, down from the 3.551% level reached on Thursday, the highest since November 2007.

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