Bonds yields have been steadily climbing as investors brace for steeper rate increases by the Federal Reserve. Yields across the Treasury market have been higher by at least 5 basis points following an upward revision to the fourth-quarter unit-labor-costs growth rate. The yield for a 30-year bond increased by up to 8 basis points to reach 4.03%, an increase from the 2023 low of 3.5%, which was seen in[0] Following the 25-basis-points increase, the yields on 2-year and 10-year Treasury bonds rose. Statements made recently by Federal Reserve officials have increased worries that monetary policy will become even stricter in the future.[1]
On Tuesday, the benchmark 10-year Treasury yield temporarily rose to 4%, which is a level that has not been sustained for more than 10 years. Yields and prices have a relationship in which one increases as the other decreases; one basis point is equivalent to 0.01%. The returns and costs vary inversely and one basis point is equal to 0.01%.
According to the CME FedWatch tool, the markets are anticipating that the Federal Reserve will increase its benchmark rate by 25 basis points to a range of 4.75%-5% on March 22 with a 69.4% probability.[1] The probability of a 50-basis-point increase has increased to 30.6%.[2] On Wednesday, Neel Kashkari, the President of the Minneapolis Federal Reserve, expressed that he was amenable to the notion of a more significant interest rate rise at the upcoming policy gathering, either “25 or 50 basis points,” yet he has not finalized his decision.[3]
At the end of February, weekly initial jobless claims in the U.S. stayed below 200,000 for the seventh consecutive week, signaling ongoing labor-market robustness.[4] Meanwhile, inflation hasn’t come off nearly as much as expected in either the U.S. or the eurozone, with the latter recording an annual CPI inflation rate of 8.5% for last month.[4]
The 10-year yield TMUBMUSD10Y +1.68% was at 4.07% on Thursday, up around seven basis points (a basis point is a hundredth of a percent).[5] Wednesday saw the yield reach 4% for the first time since November 2019, a significant increase from its year-to-date low of approximately 3.37% in mid-January.
0. “Entire Treasury Market Yields at Least 4%, Now Including 30-Year” Bloomberg, 2 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-02/treasury-30-year-yield-tops-4-for-first-time-since-november
1. “10-year Treasury yield hits highest level since November” CNBC, 21 Feb. 2023, https://www.cnbc.com/2023/02/21/us-treasury-yields-investors-look-to-key-economic-data-fed-minutes.html
2. “10-year Treasury yield heads further above 4% to highest level since November after eurozone inflation data” msnNOW, 2 Mar. 2023, https://www.msn.com/en-us/money/markets/ten-year-treasury-yields-move-further-above-4percent/ar-AA1886ES
3. “2-year Treasury Yield Attains 17-year High amid Sustained Fed Rate Hikes” Coinspeaker, 2 Mar. 2023, https://www.coinspeaker.com/2-year-treasury-yield-17-year-high/
4. “Inflation data pushed the 10-year Treasury yield above 4%. How much higher can interest rates go?” MarketWatch, 2 Mar. 2023, https://www.marketwatch.com/story/how-much-higher-whats-next-as-10-year-treasury-yield-moves-solidly-above-4-57a9f6c
5. “The Bond Market’s Recession Siren Roars Louder as Rates Rise” Barron’s, 2 Mar. 2023, https://www.barrons.com/articles/bond-yield-curve-stock-market-recession-dc77b93f