Treasury 10-year yields topped 4% for the first time since November, signaling that the Federal Reserve’s warnings of higher-for-longer rates are finally sinking in.
(Bloomberg) — Treasury 10-year yields topped 4% for the first time since November, signaling that the Federal Reserve’s warnings of higher-for-longer rates are finally sinking in.
A selloff in bonds pushed the yield on those notes up as much as 8 basis points Wednesday. Prices have declined for much of the past month as indications of a hot labor market and persistently high inflation had traders amping up bets on additional tightening. The 30-year bond is the only major benchmark whose yield has yet to crack the 4% threshold this year.
Market expectations for the Fed peak rate climbed to about 5.5% in September after data showed a gauge of manufacturing improved for the first time in six months, underscoring building inflationary pressures. That’s nearly a percentage point above the effective fed funds rate that currently sits between 4.5% and 4.75%.
At the same time, the odds of a rate reduction in 2023 have diminished, with traders now pricing in only about a half of a quarter-point cut — from almost 60 basis points a month ago.
“The market generally is now very sensitive to anything that works with the sticky inflation narrative,” said Alan Ruskin, chief international strategist at Deutsche Bank. “Technically the November high at 4.11% is a first stop” for the 10-year if it closes above 4%.
Fed Bank of Atlanta President Raphael Bostic in an online essay published Wednesday called for continued interest-rate hikes to above 5% — and for the rate to remain at that level well into 2024 — to ensure that inflation returns to the central bank’s target and doesn’t reaccelerate in a pattern similar to the 1970s.
The central bank has raised its policy rate eight times since March 2022 after dropping the lower bound to 0% two years earlier at the onset of the pandemic.
–With assistance from Sydney Maki and Michael MacKenzie.
(Updates throughout.)
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