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Treasury yields rose further Tuesday, a day after Federal Reserve Chairman Jerome Powell said policy makers could deliver benchmark interest rate hikes bigger than a quarter percentage point if needed to rein in inflation.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.342%
was at 2.347%, compared with 2.315% at 3 p.m. Eastern on Monday. The yield on the 10-year jumped nearly 17 basis points Monday, its largest daily rise since March 18, 2020. -
The 2-year Treasury yield note
TMUBMUSD02Y,
2.174%
stood at 2.175% versus 2.132% on Monday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.558%
rose to 2.567%, compared with 2.535% late Monday. - Based on 3 p.m. levels, the yields on the 2- and 10-year notes Monday were the highest since May 24, 2019, while the 30-year yield was the highest since July 30, 2019.
What’s driving the market?
Treasury yields on Tuesday were extending a rise that came after Powell, speaking around midday Monday to the National Association for Business Economics, said Fed policy makers were prepared to lift rates in increments larger than 25 basis points, or a quarter of a percentage point, in future meetings if needed to rein in inflation. Powell also said the Fed would lift the fed-funds rate above the so-called neutral rate — the level at which it neither speeds nor slows economic growth — if needed.
Only last week the Fed raised its benchmark rate by 25 basis points for the first time since 2018 to combat U.S. inflation running at the highest level in 40 years in the wake of the coronavirus pandemic.
Fed-funds futures this week showed traders had priced in a 61.6% probability of a 50 basis point rate increase at the next policy meeting in May, according to the CME FedWatch tool. That’s up from 50.5% a week ago.
Investors will hear from more Fed officials Tuesday, including New York Fed President John Williams, San Francisco Fed President Mary Daly, and Cleveland Fed President Loretta Mester.
Meanwhile, Russia intensified air and sea attacks across Ukraine. President Joe Biden on Monday encouraged U.S. companies to harden their cyber defenses against Russia.
What are analysts saying?
Powell “went on to say that the central bank would act based on how much progress was being made in bringing inflation back to target, and not assume it will come lower all by itself as supply chain concerns decrease,” said Michael Hewson, chief market analysts at CMC Markets UK, in a note. “Powell’s tone in this regard appears to draw a line under the transitory narrative of six months ago, and suggests the Fed is likely to err on the side of tightening too quickly, rather than by not enough.”
