Treasury Yields Climb as Fed Rate Hike Fears Increase
By 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
