U.S. Treasury yields rose on Wednesday while the S&P 500 closed at a fresh record, as traders weighed comments from Treasury Secretary Bessent, shifting rate expectations and looming economic data.
Fed outlook: cuts still expected, but timing in question
Secretary Bessent reiterated that eventual interest rate cuts by the Federal Reserve are still anticipated, but cautioned that the central bank may pause before lowering policy rates again.
The remarks introduced fresh uncertainty for traders who had been expecting a more immediate easing cycle. Stronger-than-expected economic data in coming weeks could further delay rate reductions, reinforcing upward pressure on yields and tightening financial conditions.
Oil waivers scrapped, energy inflation back in focus
Bessent confirmed that the U.S. will not renew oil waivers previously granted to Iran and Russia.
The decision is expected to keep upward pressure on global energy prices, complicating an inflation backdrop that remains central to the Fed’s policy debate. Higher oil prices risk feeding into broader price levels, potentially constraining the Fed’s room to cut rates even as borrowing costs rise across the economy.
Foreign demand for treasuries hits record levels
Despite higher yields, demand for U.S. government debt remains strong.
Treasury Department data showed foreign accounts increased their holdings of U.S. Treasuries by about $198 billion in February, bringing total foreign ownership to a record $9.49 trillion. When including all long-term and short-term securities and banking flows, net foreign inflows reached $184.5 billion for the month.
This continued appetite for U.S. debt has helped absorb growing issuance, even as the cost of borrowing for the government moves higher.
Focus turns to jobless claims and industrial output
Attention now shifts to Thursday’s economic releases, seen as key tests of the economy’s momentum.
- Initial jobless claims for the week ending April 11 are forecast at around 215,000, slightly below the prior reading of 219,000.
- March industrial production is expected to show a modest 0.1% month‑over‑month rise, easing from 0.2% growth previously.
Traders will be watching for signs of either cooling or resilience in activity. Data pointing to ongoing strength could reinforce the case for the Fed to stay on hold longer, while softer numbers may revive expectations for earlier cuts.
Fed speakers in the spotlight
Market participants are also preparing for comments from key Federal Reserve officials.
New York Fed President John Williams and Fed Governor Miran are scheduled to speak, with Williams delivering a keynote address followed by a Q&A. Their remarks on inflation, growth and policy strategy will be measured against Bessent’s cautious tone and could further shape expectations for the timing and pace of rate cuts.
Geopolitics and markets: Middle East tensions drive risk mood
Developments in the Middle East remain a dominant factor for markets heading into the weekend. The conflict, now in its seventh week, continues to disrupt energy flows and tighten supply, contributing to volatility in oil prices.
A recent April Bank of America survey of global fund managers highlighted the shift in risk perception: geopolitics is now cited as the top concern, and 76% of respondents describe the current environment as one of stagflation, combining slow growth with persistent inflation pressures.
Rising yields challenge risk assets
The current backdrop features a rare combination: U.S. borrowing costs are climbing at the same time as the stock market sets record highs. This pattern suggests a robust degree of confidence in corporate earnings despite a higher cost of capital.
For holders of non‑yielding assets, the move higher in interest rates raises the opportunity cost of staying in those positions, making government bonds relatively more attractive.
Correlation between speculative assets and growth stocks has strengthened, with both segments moving more closely in response to macroeconomic data and shifts in liquidity expectations. That leaves them especially sensitive to any change in rate outlook or inflation trajectory.
Bond market volatility now leading risk direction
With energy prices still elevated but more widely anticipated, volatility in the bond market has become a primary driver for the direction of risk assets.
Any evidence that the economy remains resilient could push back the timeline for Fed easing, creating headwinds for rate‑sensitive trades. Conversely, signs of slowing activity may revive expectations for earlier policy support, easing pressure on longer‑duration assets.
As traders navigate this environment, the interplay between central bank communication, economic releases and geopolitical headlines is setting the tone across equities, bonds, commodities and currencies.
Want to see how crypto reacts to shifting yields and records? Explore key insights in this crypto market analysis now.
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