Treasury yield curve falls after Powell comments on taper

After comments by Chair Jerome Powell on the prospects of faster asset-purchase tapering, traders increased bets on the pace of Federal Reserve policy tightening, pushing the Treasury yield curve to its lowest level since January.

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The 10 year rate over the 2 year yield fell by 10.1 basis points to 90.9 basis points after Powell, testifying before Congress, said the central bank can consider wrapping up tapering a few months sooner.

The 2 year rate climbed as much as 8.5 basis points to 0.57%, and its high for the day was around 14 basis points above the intraday low.

Nancy Davis, chief investment officer at Quadratic Capital Management, said Powell's comments likely mean the Fed is going to continue tapering and removing liquidity from financial markets. There is the possibility that there is more market volatility. Money markets now show close to 58 basis points of hikes -- more than two standard quarter-point increases -- priced in by the end of 2022. They had been showing closer to 50 basis points at the close of trading Monday. The first full hike is scheduled for July.

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