2-year Treasury yield reaches one-week high as traders assess likelihood of more Fed rate hikes

Treasury yields jumped on Friday, sending the 2-year rate to a one-week high, after Boston Fed President Susan Collins put another aggressive 75-basis-point rate hike on the table for December’s policy meeting.

The 2-year yield also finished the week higher, while the 10- and 30-year rates had weekly declines.

What happened

  • The yield on the 2-year Treasury

    advanced 5.8 basis points to 4.510% from 4.452% on Thursday.  Friday’s level is the highest since Nov. 9, based on 3 p.m. figures from Dow Jones Market Data. The 2-year rate rose 18.6 basis points this week.

  • The yield on the 10-year Treasury

    rose 4.3 basis points to 3.817% from 3.774% as of Thursday afternoon. For the week, the yield fell 1.1 basis points.

  • The yield on the 30-year Treasury

    rose 3.8 basis points to 3.926% from 3.888% late Thursday. The rate declined 15.4 basis points this week. 

What drove the market

Treasury yields rose on Friday after Collins of the Boston Fed said she is open to all different sizes for the next Fed interest rate hike, but also said that a 75-basis-point move “is still on the table, I think it is important to say that.” 

Her remarks came a day after her colleague, James Bullard of the St. Louis Fed, indicated the central bank’s policy rate would have to reach a range between 5% and 7% to be in a sufficiently restrictive zone. Many in financial markets took Bullard’s view with a grain of salt, but economists at Stifel, Nicolaus & Co. said the Fed’s policy rate will likely need to go even higher, to between 8% and 9%, to bring inflation back down to 2%.

Read: Did Bullard undershoot? Stifel economists say fed-funds rate may need to go to 8%-9%

Data released on Friday showed that U.S. existing home sales retreated for a record ninth straight month in October. The U.S. leading economic index fell 0.8% in November for an eighth straight decline, suggesting the economy may already be in a recession.

What analysts are saying

“The Fed is united in sticking to the hawkish script. Fed’s Collins noted that a 75 basis-point rate increase is still on the table as there is no clear evidence that inflation is coming down. Despite this week’s steady hawkish tones from policy makers, Wall Street remains convinced that they will pivot and probably cut rates at some point around the end of next year,” said Edward Moya, senior market analyst for the Americas at OANDA Corp.

Source: https://www.marketwatch.com/story/bond-yields-continue-to-climb-after-bullard-states-fed-rates-may-need-to-reach-7-11668766830?siteid=yhoof2&yptr=yahoo