T-yields retreat as markets cautiously Eying Jackson Hole

US Treasury yields slid on Thursday after hitting multi-week highs the previous session, as investors balanced their positions amid uncertainty as to what Federal Reserve Chair Jerome Powell might say when he speaks on Friday at a global central bank conference in Jackson Hole.

The bond market expects Powell to stick to his message of bringing down US inflation to the Fed’s 2% target, some big players such as Goldman Sachs expect the central bank chief to reiterate the case for slowing the pace of tightening, similar to what he said in his July news conference.

US yields on Wednesday, from two-year notes to 30-year bonds, hit peaks of between five to 10 weeks, with market participants positioning for hawkish comments from Powell. Ahead of Powell, St. Louis Fed President James Bullard repeated on Thursday that he would like the policy rate to climb to between 3.75% and 4.00% by year-end from its current range of 2.25% to 2.50%.

The bond market has already done a lot of the heavy lifting for continued messaging of a 75 basis-point hike in September. I think the political risk for the Fed of not doing 75 is just too great, because if they slow it down in September and then the data show inflation is still too persistent.