NEW YORK: US Treasury yields held at lower levels on Friday after a volatile week that saw yields hit more than 10-year highs on expectations of aggressive rate hikes, and then fall on concerns about how these will impact growth.
The Federal Reserve is expected to continue hiking interest rates aggressively as it faces soaring inflation, following a 75 basis points hike on Wednesday, which was the largest since 1994.
“There’s a lot of worries about the next time the Fed meets, which is the end of July, about whether they are going to do 75 or do something slightly less, which would be 50 basis points,” said Tom di Galoma, a managing director at Seaport Global Holdings.
Fed funds futures traders are pricing in a 82% probability of a 75 basis points hike in July, and an 18% chance of a 50 basis points increase. The Fed’s benchmark rate is expected to rise to 3.75% by March, from 1.58% now.
The impact of the rapid increase in interest rates is expected to weigh on growth, and could tip the economy into recession, which would likely send longer-dated Treasury yields lower.
“As we go through the rest of the year I think rates will be lower than they are right now, because I think we’re headed towards a recession sooner rather than later,” di Galoma said.
Two-year Treasury yields, which are highly sensitive to interest rate moves, were last at 3.120% and are down from 3.456% on Tuesday, which was the highest since November 2007.
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