Benchmark yields highest since 2011, curve inversion deepens
NEW YORK — Benchmark U.S. Treasury
yields hit an 11-year high on Thursday and a key part of the
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
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
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
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
The curve between five-year and 30-year bonds
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.
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
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.
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
DOLLAR SWAP SPREADS
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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