Will the Fed push back against higher bond yields?
The Federal Reserve convenes for its policy meeting this week at a pivotal point for the US economic recovery, prompting speculation about its plans to manage a rise in borrowing costs.
Since its previous gathering in late January, trading conditions in the nation’s $21tn government bond market have at times turned choppy.
Yields, which rise as prices fall, have shot higher, and the benchmark 10-year note now trades at a 13-month high above 1.6 per cent. The swift surge has rattled equity markets, especially the high-flying technology sector that has benefited from historically low interest rates.
The moves reflect growing optimism among investors about the pace of the economic recovery, but also percolating fears that the Fed may raise interest rates at a faster pace than many anticipate.
Inflation expectations have soared since the start of the year, with one market measure — the five-year break-even…