Fed policy stance keeps Treasury yields high: Citadel

 The Federal Reserve's approach to monetary policy following a period of elevated inflation continues to push long-term bond yields to multiyear highs, creating broader market risks, Citadel Securities said.

Long-dated Treasury yields stand at their highest levels in nearly two decades, despite policy rates sitting 175 basis points below their peak, Nohshad Shah, Citadel's head of EMEA fixed-income sales, wrote in a client note.

"In my mind, this reflects a market view that policymakers, both the Fed and fiscal authorities, tend to take the easier route when faced with difficult choices," Shah wrote. "So long as this persists, it will remain a risk for markets more broadly."

US 30-year bond yields reached a 19-year high on Monday, rising above 5.28%. The move came as the bond market reduced expectations for a Fed interest-rate cut in September following data last week that showed both inflation and consumer demand were easing.

Shah warned against viewing the recent improvement in inflation and a soft jobs market as a signal that rates are ready to decline. He noted that more than 55% of core goods prices were rising, making the Fed's policy meeting next month a "line-ball call."

On artificial intelligence, Shah said the investment case is shifting toward cloud infrastructure and away from development of more advanced models. Hyperscalers such as Microsoft and Google will be better positioned to monetize AI through computing capacity, inference and distribution, potentially offering more visible returns than frontier AI developers such as OpenAI and Anthropic.

https://uk.finance.yahoo.com/news/fed-policy-stance-keeps-treasury-164610665.html