The yield on the 6-month T-bill rose to an almost 16-year high on Wednesday after minutes from the Federal Reserve’s last meeting indicated that all policy makers wanted to keep hiking interest rates.
What happened
- The 6-month T-bill rate rose to 5.102%, its highest 3 p.m. level since mid-March 2007, according to Tradeweb. The 1-year rate rose to 5.065%, but remained at its highest level since early January 2001.
- The yield on the 2-year Treasury
TMUBMUSD02Y,
4.682%
was marginally higher at 4.697% after factoring in new-issue levels. Wednesday’s level is the second highest of this year, based on 3 p.m. figures from Dow Jones Market Data. Yields move in the opposite direction to prices. - The yield on the 10-year Treasury
TMUBMUSD10Y,
3.925%
retreated by 3.1 basis points to 3.922% from 3.953% on Tuesday. Tuesday’s level was the highest since Nov. 9. - The yield on the 30-year Treasury
TMUBMUSD30Y,
3.915%
declined 4.8 basis points to 3.927% from 3.975% on Tuesday. Tuesday’s level was the highest since Dec. 28.
What drove markets
Minutes of the Federal Reserve’s Jan. 31-Feb. 1 meeting showed that only a few policy makers wanted to raise rates by a bigger, half-of-a-percentage-point increment than the quarter-point hike that had been delivered. Still, all participants on the rate-setting Federal Open Market Committee continued to expect that ongoing rate increases would be appropriate to achieve the FOMC’s objectives.
Yields have surged over the past few weeks — with the policy-sensitive 2-year yield reaching its highest level since 2007 on Tuesday — in response to stronger-than-expected economic data that may cause the Fed to keep borrowing costs higher for longer. The Fed’s minutes, released on Wednesday, reflect the period before that stream of strong U.S. data came in.
Markets are pricing in an 73% probability that the Fed will raise interest rates by another 25 basis points to a range of 4.75% to 5% on March 22, according to the CME FedWatch tool. The chance of a 50-basis-point hike, which would lift the range to between 5% and 5.25%, is now 27% versus 12% just a week ago.
Also read: Fed’s Bullard: Markets have overpriced a recession
The central bank is also mostly expected to take its fed-funds rate target to at least 5.25% and 5.5% by July, though there’s a slim chance seen that the target could approach 6%, according to 30-day fed-funds futures.
What analysts are saying
“The Fed has the luxury of a strong labor market, and overall resilient economic landscape, to keep raising rates until the Federal Open Market Committee feels comfortable that inflationary pressures are closer to its price stability mandate,” said Quincy Krosby, chief global strategist for LPL Financial.
“Should inflation continue to climb, based on the minutes, there could be enough voting members to push for a 50 basis point move,” Krosby wrote in an email. “Overall, the minutes suggest a `wait and see approach’ as they remain data dependent.”
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Source: https://www.marketwatch.com/story/treasury-yields-a-fraction-softer-as-traders-eye-fed-minutes-a99c7554?siteid=yhoof2&yptr=yahoo