U.S. yields hit new highs amid continued inflation fears
NEW YORK — U.S. Treasury yields edged
higher on Tuesday, reversing an early morning rally after a
sharp rise in job openings added to investor worries about the
Federal Reserve’s aggressive monetary tightening measures.
Some U.S. government bond yields had decreased slightly
earlier on Tuesday after inflation data from Europe which was
either within consensus or lower.
But that proved to be short-lived, with rising yield
pressures continuing to drive the market after comments by Fed
Chair Jerome Powell on Friday that indicated the U.S. central
bank will keep raising interest rates to fight inflation even as
that causes pain for households and businesses.
“Powell hardly hedged his hawkish views at all this time
around,” said John Vail, Chief Global Strategist at Nikko Asset
Demand for labor showed no sign of cooling as data showed
U.S. job openings rose to 11.239 million in July, which could
keep the Fed on its aggressive monetary policy tightening path.
Benchmark 10-year Treasury yields were at
3.108%, the highest since the end of June, while two-year note
yields climbed to 3.466%, hitting a new 15-year high.
The Fed has raised its benchmark overnight interest rate by
225 basis points since March but the rapid tightening of
financial conditions has led investors to weigh inflation
concerns against recessionary fears.
On Tuesday, Richmond Federal Reserve Bank President Thomas
Barkin said recession was a risk of the Fed’s efforts to bring
inflation down to a 2% goal, but that it does not need to be
New York Federal Reserve Bank President John Williams, who
is Powell’s No. 2 on the Fed’s policymaking panel, on Tuesday
said the Fed will likely need to get its policy rate above 3.5%
and is unlikely to cut interest rates at all next year.
“The Fed is going to do what it takes to bring inflation
down, and won’t falter in the face of an economic slowdown,”
said Dean Smith, chief strategist at FolioBeyond.
Fed funds futures’ traders on Tuesday priced in a 72.5%
chance that the Fed will increase rates by 75 basis points next
month, and bet that rates would rise to a high of 3.9% by March
next year, with some rate cuts priced in for the second half of
The closely watched yield curve measured by the gap between
two- and 10-year yields remained strongly
inverted at minus 36 basis points. An inversion is seen by many
as a reliable signal of an approaching recession.
August 30 Tuesday 3:00PM New York / 1900 GMT
Price Current Net
Yield % Change
Three-month bills 2.8825 2.9442 -0.005
Six-month bills 3.245 3.3449 -0.016
Two-year note 99-150/256 3.4661 0.039
Three-year note 99-6/256 3.4751 0.026
Five-year note 99-78/256 3.2769 0.014
Seven-year note 99-106/256 3.2192 0.004
10-year note 96-244/256 3.1081 -0.002
20-year bond 98-100/256 3.4875 -0.012
30-year bond 95-204/256 3.2197 -0.027
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 35.50 1.25
U.S. 3-year dollar swap 14.50 1.00
U.S. 5-year dollar swap 8.25 0.25
U.S. 10-year dollar swap 9.00 0.50
U.S. 30-year dollar swap -28.00 1.00
(Reporting by Davide Barbuscia; editing by Jonathan Oatis)
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