U.S. yields keep climbing as rate hike concerns grip markets

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NEW YORK — U.S. Treasury yields were

up to new highs on Monday, rising in tandem with euro zone and

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British government debt yields amid concerns that central banks

globally will keep tightening monetary policy to curb stubbornly

high inflation.

The slump in global bonds on Monday followed a week that saw

the Federal Reserve deliver its third straight seventy-five

basis point rate hike and the British pound slide to a 37-year

low against the dollar after the country’s new finance minister

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unleashed historic tax cuts and huge increases in borrowing.

Sterling dropped further on Monday, and a renewed sell-off

in British gilts pushed euro zone yields higher.

Two-year Treasury yields, which tend to be more

sensitive to interest rate changes, rose to a fresh 15-year high

of 4.237%, and benchmark 10-year note yields were up

about 5 basis points from their Friday close, climbing to

3.746%. Last week, those yields jumped to an intra-day high of

3.829%, the highest since April 2010.

“Back to back statements from Fed Chair Jerome Powell, first

from Jackson Hole and then last week, were clear and unambiguous

that the inflation has to be brought under control by any means

necessary … finally the market is listening,” said Dean Smith,

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chief strategist at FolioBeyond.

Concerns that a Fed, dead-set on bringing inflation down,

may tighten financial conditions to the point of tipping the

economy into sharp contraction continued to grip markets, but

some investors’ expectations that the Fed may soon embark on a

policy U-turn to stimulate a dwindling economy were dashed when

Powell last week said that he and his fellow policymakers would

“keep at” their battle to beat down inflation.

Bringing down price pressure is going to require “a

steepening of the yield curve, higher long-term rates and some

actually observed lower inflation prints, and we’re not going to

see that this year,” Smith said.

The inversion in the yield curve between two-year and

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10-year notes was at minus 46 basis points on

Monday, still deep in negative territory but steeper than last

week when that curve – seen as signaling an impending recession

– was the most inverted in at least two decades.

The Fed last week updated the so-called “dot plot,” which

indicates each policymaker’s view of where rates should be at

the end of each year through 2025. Fed officials now see rates

rising to 4.6% in 2023, much higher than previous views. It also

projected year-end economic growth for 2022 at 0.2%, rising to

1.2% in 2023.

“The Fed still sees positive growth this year and sees it

picking up next year. But it also wants to see evidence core

inflation is on a decisive 2% trajectory beyond 2023 before it

stops hiking,” the BlackRock Investment Institute said in a note

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on Monday.

“This soft landing doesn’t add up to us … We think the Fed

is not only underestimating the recession needed but ignoring

that it’s logically necessary,” it said.

September 26 Monday 9:21AM New York / 1321 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 3.15 3.218 0.023

Six-month bills 3.7725 3.8972 0.010

Two-year note 98-49/256 4.2369 0.023

Three-year note 97-226/256 4.2669 0.038

Five-year note 95-252/256 4.0316 0.048

Seven-year note 95-48/256 3.9251 0.051

10-year note 91-212/256 3.7467 0.050

20-year bond 92-120/256 3.9239 0.029

30-year bond 88-172/256 3.6236 0.012

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 36.75 -3.00

spread

U.S. 3-year dollar swap 12.00 -2.25

spread

U.S. 5-year dollar swap 6.25 -0.75

spread

U.S. 10-year dollar swap 3.50 -0.25

spread

U.S. 30-year dollar swap -37.00 -0.75

spread

(Reporting by Davide Barbuscia

Editing by Nick Zieminski)