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Treasury Yields Jolted From Highs on Prospect of Fed Let-Up
© Reuters. Treasury Yields Jolted From Highs on Prospect of Fed Let-Up
(Bloomberg) -- The US five-year Treasury yield exceeded 4.5% for the first time since 2007 on Friday on the prospect of unrelenting Federal Reserve rate increases to control inflation. It subsequently slid to the lowest level of the day on a report undercutting that thesis.
Earlier, yields across the maturity spectrum reached multiyear highs led by the 30-year, which rose as much as 14 basis points to 4.36%, the highest since 2011. The five-year yield rose as much as six basis points to 4.504%. By mid-morning, short-dated rates were lower on the day while long-dated ones remained higher.
The reversal in short-maturity yields occurred after the Wall Street Journal reported that some Fed officials are concerned about overtightening, after having raised the policy rate by three percentage points since March, with another three-quarter point increase anticipated next month. The article said policy makers are likely to debate whether to signal that a smaller rate increase is possible in December.
The divergence in yields took a toll on popular curve-flattening trades based on rate-hike expectations. Two-year yields, which in the past month have reached levels nearly 60 basis points higher than 10-year yields, declined to within 25 basis points.
Still, Treasuries are on course for a 12th-straight weekly loss, the longest streak since 1984, when then-Federal Reserve Chairman Paul Volcker was carrying out a series of rapid rate hikes. German bonds also are headed for a record 12-week losing streak.
“The bond market has lost confidence that inflation will naturally come down,” said Rob Waldner, chief fixed income strategist at Invesco. “We think bond yields are in the process of overshooting. Volatility will stay high as there is no clear indicator for the Fed to stop.”
©2022 Bloomberg L.P.
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