US T-bond yields drop for the third consecutive day

• US Treasury yields stay pressured ahead of the next week’s key FOMC.
• Treasury Secretary Yellen signaled policymakers’ readiness to act.
• Stock futures, Asia-Pacific shares remain pressured amid a light calendar day.

Market sentiment remains sour during early Friday as traders keenly await the Federal Reserve (Fed) monetary policy meeting. Adding to the risk-off mood could be the hawkish comments from US Treasury Secretary Janet Yellen as well as mixed concerns over Omicron and US-China ties.

While portraying the mood, the US 10-year Treasury yields print three-day downtrend from a two-year high, flashed early in the week, down six basis points to 1.77% at the latest. Also signaling the risk aversion is the 0.45% intraday loss of the S&P 500 Futures and downbeat performance of the Asia-Pacific shares.

It should be noted, however, that the US Dollar Index (DXY) fails to cheer the risk-off mood, down 0.08% intraday near 95.71 but the commodities are directionless at the latest.

That said, the expectations of the Fed’s signal to rate hike grew stronger after US Treasury Secretary Janet Yellen said in a CNBC interview, “Inflation rose by more than most economists, including me, expected and of course, it's our responsibility with the Fed to address that. And we will.”

In addition to the pre-Fed caution, mixed concerns over the US-China ties also weighed the market’s sentiment and the USD/JPY prices. That said, the South China Morning Post (SCMP) signaled that China’s Yang Jiechi and US national security adviser Jake Sullivan are up for a crunch meeting but no date was indicated.

Elsewhere, Reuters quotes anonymous sources to signal the People’s Bank of China’s (PBOC) further rate actions whereas Omicron concerns ease in the West but not much in the Asia-Pacific region. Additionally, Bank of Japan (BOJ) policymakers flagged inflation concerns while mixed US data seems to tame the Fed rate hike bets and possibly allow DXY consolidation of late.

Looking forward, a lack of major data/events can restrict short-term market moves but the bearish bias remains intact amid downbeat Treasury yields and pre-Fed fears.

Read: Fed Preview: Three ways Powell could out-dove markets, dealing a blow to the dollar