Benchmark yields highest since 2011, curve inversion deepens


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NEW YORK — Benchmark U.S. Treasury

yields hit an 11-year high on Thursday and a key part of the

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yield curve was the most inverted in at least two decades as

investors positioned for the Federal Reserve to continue its

hawkish stance toward hiking rates as it battles persistently

high inflation.

The U.S. central bank on Wednesday hiked interest rates by

75 basis points and signaled more increases are to come. The

target interest rate was increased to a range of 3.00%-3.25% and

new projections in the “dot plot” showed its policy rate rising

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to 4.40% by the end of this year before topping out at 4.60% in


“The dot plot was more hawkish than expected, though it

ended up being downplayed a bit,” said Michael de Pass, head of

linear rates at Citadel Securities.

Yields eased from highs on Wednesday after Fed Chairman

Jerome Powell said that the so-called “dot plot” of rate

expectations do not represent a plan or commitment, underscoring

the difficulty in forecasting the economy’s path.

Benchmark 10-year Treasury yields have risen from four-month

lows on Aug. 2 on rising expectations that the Fed will continue

to tighten monetary policy and hold rates higher for longer even

if it risks denting growth.

This move has been led by so-called real yields, which

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account for expected inflation.

“Given the move we’d seen, particularly in real yields, over

the last couple of weeks the market had done a lot of work to

price in expectations. The real takeaway is that the Fed is

continuing on with its inflation mandate regardless of the

effect on the job market,” said de Pass.

Powell said that central bank officials are “strongly

resolved” to bring down inflation from the highest levels in

four decades and “will keep at it until the job is done.”

The yield curve between two-year and 10-year notes

inverted as far as minus 58 basis points, the

most inverted level since at least 2000, indicating rising

concerns about an impending recession. It was last at minus 41

basis points.

The curve between five-year and 30-year bonds

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also inverted to minus 34 basis points, before steepening back

to minus 28 basis points

“The flatness is here to stay,” said Subadra Rajappa, head

of U.S. rates strategy at Societe Generale in New York. “You’re

going to have the front end pegged to Fed expectations and the

long-end looking towards the repercussions of tighter policy

leading to perhaps a recession sooner than people have


Data on Thursday showed that the number of Americans filing

new claims for unemployment benefits increased moderately last

week, indicating the labor market remains tight.

Traders were also focused on Thursday on whether Japan was

selling Treasuries as the country intervenes to shore up the

tumbling yen. Japan is the largest foreign holder of U.S.

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Treasuries, with $1.23 trillion in the assets as of July,

according to government data.

Two-year yields reached 4.163%, the highest since

October 2007. Five-year yields hit 3.942%, the

highest since November 2007 and benchmark 10-year yields

jumped to 3.716%, the highest since February 2011.

Real yields also rose on Thursday.

Five-year yields on Treasury Inflation-Protected Securities

(TIPS) reached 1.506%, the highest since June 2009.

10-year TIPS yields hit 1.322%, the highest since

February 2011.

The Treasury Department saw strong demand for a $15 billion

sale of 10-year TIPS on Thursday. The debt sold at a high yield

of 1.245% and the bid-to-cover ratio was 2.54 times, the highest

since September 2021.

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The Treasury will sell $123 billion in coupon-bearing supply

next week, including $43 billion in two-year notes on Monday,

$44 billion in five-year notes on Tuesday and $36 billion in

seven-year notes on Thursday.

September 22 Thursday 3:00PM New York / 1900 GMT

Price Current Net

Yield % Change


Three-month bills 3.1625 3.232 -0.060

Six-month bills 3.775 3.9015 0.000

Two-year note 98-100/256 4.1223 0.127

Three-year note 98-62/256 4.1332 0.193

Five-year note 96-120/256 3.9183 0.203

Seven-year note 95-164/256 3.8468 0.203

10-year note 92-52/256 3.6979 0.186

20-year bond 92-168/256 3.9093 0.149

30-year bond 88-128/256 3.6338 0.114


Last (bps) Net



U.S. 2-year dollar swap 40.50 1.00


U.S. 3-year dollar swap 15.25 -4.25


U.S. 5-year dollar swap 7.75 -1.50


U.S. 10-year dollar swap 4.75 -1.25


U.S. 30-year dollar swap -32.25 -1.25


(Reporting by Karen Brettell; editing by Jonathan Oatis)



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