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Yields on the Rise After Gradual Decline

Fixed income markets ended the week near their highs as a gradual decline in yields was reversed late in the week. The Friday move higher was particularly abrupt and accompanied a rise in the market's inflation expectations, pushing most longer-term Treasury yields higher by 5 bps for the week. The move was in line with other global debt markets and also followed an auction of 10-year Treasury notes which received the lowest level of indirect bids (a proxy for
international participation) since August, 2020. The increase in yields leaves Fed policymakers in a difficult position, as they continue to see relatively low longterm inflation. This is despite the strong likelihood of higher inflation readings over the next few months due to YOY comparisons to a particularly weak period immediately following the COVID pandemic outbreak. Their meeting this coming week will be watched closely for their assessment of the economy's performance as well as any modifications to their inflation outlook.

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