2-year Treasury note reaches highest level in nearly 15 years, topping 3.9%
Investors’ anticipation of additional interest rate increases to combat inflation led to a rise in short-term U.S. Treasury yields on Friday.
The 2-year Treasury bond’s yield increased to a level not seen since November 1, 2007, rising beyond 3.9%. It had increased 3 basis points to 3.903% as of 8:30 a.m. ET.
Due to its widespread reputation as a leading indicator of how investors believe central bank policy will change in the near future, the 2-year Treasury is extremely sensitive to policy moves.
The 10-year Treasury yield remained stable at 3.455%. The 30-year Treasury’s yield increased by one basis point to 3.489%.
Prices move up while yields move down. A basis point is 0.01%, or one percent.
After a hotter-than-expected inflation report on Tuesday, the yield curve has risen across the board this week. Investors now anticipate that the Federal Reserve will raise rates further and maintain them there until inflation starts to decline as a result of the ongoing price increases.
Next week, the Fed meets. While most forecasters believe the Fed will raise rates by 0.75 percentage points, other analysts believe they may go up by a full point, or 100 basis points. The rate increase would be the largest in 40 years.
Following a hotter-than-expected US inflation report for August on Tuesday that drove equities to their worst one-day performance since June 2020, traders are preparing for next week’s Federal Reserve meeting where some are asking for a 100 basis point increase in the benchmark policy rate.
On the assumption that the Federal Reserve will increase rates by at least 75 basis points and maintain them higher for longer, yields have been climbing.
Due to this, the yield curve for 2-year and 10-year Treasury bonds has inverted, with the former yielding more than 40 basis points more than the latter.
According to the CME FedWatch Tool, traders of Fed funds futures are pricing in a 22% possibility of a jumbo-size boost of 100 basis points, or a full percentage point, and a 78% chance of a 75-basis-point increase.
The University of Michigan’s consumer confidence index reached a five-month high in September, according to data released on Friday, although predictions for inflation over the next five years dropped to 2.8% from 2.9%.
