Two-year yields highest since 2007 as Fed officials talk up rate hikes


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NEW YORK — Interest-rate sensitive

two-year Treasury yields hit more than 14-year highs on Friday

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and the yield curve inverted further as Federal Reserve

officials stressed the need for more rate hikes to stem soaring

inflation.

Fed Governor Christopher Waller said on Friday that the U.S.

central bank should be aggressive with rate hikes while the

economy “can take a punch,” and said that he supports a

“significant increase” in the Fed’s target policy rate at this

month’s meeting.

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St. Louis Fed President James Bullard also reiterated his

call for a hike of 75 basis points at the meeting, saying recent

data showing continued strong job growth had him “leaning more

strongly” towards the larger rise in borrowing costs.

Kansas City Fed President Esther George, meanwhile, made the

case for a “sustained policy response” to high inflation.

“Various Fed speakers once again proved their vigilance

against inflation,” Jim Vogel, an interest rate strategist at

FHN Financial said in a note.

The comments come a day after Fed Chairman Jerome Powell

reconfirmed that the U.S. central bank’s priority is to tackle

soaring price pressures.

“Powell … sounded hawkish,” said Benjamin Jeffery,

interest rate strategist at BMO Capital Markets in New York.

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The comments sent the closely watched two-year, 10-year

Treasury yield deeper into negative territory, a sign of rising

growth concerns as the Fed presses on with tightening monetary

policy.

This part of the yield curve flattened by 6

basis points to minus 25 basis points on Friday. The inversion

is viewed as a reliable indicator that a recession is likely in

the next one to two years.

A Fed report showed on Friday that U.S. household wealth

fell by a record $6.1 trillion in the second quarter to its

lowest in a year as a bear market in stocks far outweighed

further gains in real estate values.

The next major focus will be Tuesday’s Consumer Price Index

(CPI) data, which is expected to show that prices rose at an

8.1% pace over the year in August, compared with an 8.5% print

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for July.

The data will come after Fed officials enter into a blackout

period before their Sept. 20-21 meeting.

Even if price pressures come in below expectations, analysts

see it as unlikely to sway the Fed from its path.

“Given the fact that the Fed has told us they want to take

the data in its totality, it’s challenging to envision a large

enough disappointment on the CPI read that would take a 75-basis

point hike off the table in September,” said Jeffery.

Two-year yields reached 3.575%, the highest since

November 2007.

Benchmark 10-year note yields were last 3.321%.

They have risen from a four-month low of 2.516% on Aug. 2 but

are holding below the 11-year high of 3.498% reached on June 14.

Treasuries could come under pressure next week as the

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Treasury Department sells $91 billion in new debt. This will

include $41 billion in three-year notes and $32 billion in

10-year notes, which will both be auctioned on Monday, and $18

billion in 30-year bonds due for sale on Tuesday.

September 9 Friday 3:02PM New York / 1902 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 2.9775 3.0407 0.012

Six-month bills 3.4375 3.5455 0.078

Two-year note 99-102/256 3.569 0.078

Three-year note 98-170/256 3.6099 0.067

Five-year note 98-142/256 3.4439 0.047

Seven-year note 98-60/256 3.4118 0.034

10-year note 95-52/256 3.3212 0.029

20-year bond 95-88/256 3.7075 0.016

30-year bond 91-132/256 3.4572 0.016

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 33.50 -2.50

spread

U.S. 3-year dollar swap 10.00 -1.00

spread

U.S. 5-year dollar swap 5.75 0.00

spread

U.S. 10-year dollar swap 6.75 -0.25

spread

U.S. 30-year dollar swap -32.25 0.00

spread

(Reporting by Karen Brettell; editing by Jonathan Oatis)

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