Bond yields surge after Fed holds rates steady without guidance

The Federal Reserve left US interest rates unchanged this week, and Chairman Kevin Warsh gave no signal on the future path of policy, prompting investors to push long-term bond yields sharply higder. The 30-year Treasury yield jumped 11 basis points to 5.2%, its highest level since 2007, while the 10-year yield rose 7 basis points to 4.68%. The two-year yield, more closely tied to near-term Fed moves, fell.

Three regional Federal Reserve presidents on the policy-setting committee voted for a 25 basis point rate increase, the first such three-way dissent in a decade. Warsh maintained that he has "no tolerance" for elevated inflation but declined to specify how or when the Fed might act, saying only "we're on the job, we will deliver."

Inflation remains above the Fed's target: the personal consumption expenditures index stood at 4.1% in May, with a core reading of 3.4%, even as the more widely cited consumer price index eased to 3.5%. Rising bond yields raise borrowing costs for mortgages and business loans regardless of the Fed's own rate decision. Markets are now pricing in a possible rate increase in September, with another possible in December.

Read the full story at SMH.com.au.