Two-year yields highest since 2007 as Fed officials talk up rate hikes
NEW YORK — Interest-rate sensitive
two-year Treasury yields hit more than 14-year highs on Friday
and the yield curve inverted further as Federal Reserve
officials stressed the need for more rate hikes to stem soaring
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
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.
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
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
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
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
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
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
U.S. 2-year dollar swap 33.50 -2.50
U.S. 3-year dollar swap 10.00 -1.00
U.S. 5-year dollar swap 5.75 0.00
U.S. 10-year dollar swap 6.75 -0.25
U.S. 30-year dollar swap -32.25 0.00
(Reporting by Karen Brettell; editing by Jonathan Oatis)