NEW YORK: Benchmark 10-year yields jumped to 12-year highs on Friday and two-year yields were the highest since 2007 as investors fretted that central banks globally will keep tightening monetary policy to tackle soaring inflation.
“We are pricing into the reality that we’re entering the next phase of global tightening,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.
Treasury yields rose in tandem with British government debt yields on Friday, which jumped after Britain’s new finance minister Kwasi Kwarteng unleashed historic tax cuts and huge increases in borrowing.
That came a day after the Bank of England raised its key interest rate by 50 basis points to 2.25% and said it would sell around 8.7 billion pounds ($9.8 billion) of government bonds in the final quarter of 2022, becoming the first major central bank to begin active sales.
The Federal Reserve on Wednesday hiked rates by 75 basis points and Fed Chairman Jerome Powell vowed that he and his fellow policymakers would “keep at” their battle to beat down inflation.
As rates rise, concerns about how they will impact growth and risky assets are also increasing.
Yields on 10-year Treasury Inflation-Protected Securities (TIPS), which account for expected inflation and are known as real yields, reached 1.426% on Friday, the highest since February 2011.
“That’s going to have meaningful ramifications for U.S. risk assets, we just haven’t seen that yet,” said Lyngen. “I suspect that we’re dealing with a recalibration of forward expectations that will ultimately end with a flatter curve, or a deeper inversion in the U.S. and risk assets under pressure.”
The inversion in the yield curve between two-year and 10-year notes reached minus 58 basis points on Thursday, the most inverted in at least two decades, and was last at minus 43 basis points, indicating fears about an impending recession.
Two-year yields reached 4.270%, the highest since October 2007. Five-year yields hit 4.084%, the highest since November 2007 and benchmark 10-year yields jumped to 3.829%, the highest since April 2010.
============================================================ September 23 Friday 9:07AM New York / 1307 GMT Price Current Net Yield % Change (bps) Three-month bills 3.1825 3.2517 0.020 Six-month bills 3.7825 3.9081 -0.001 Two-year note 98-91/256 4.1451 0.018 Three-year note 98-50/256 4.1519 0.010 Five-year note 96-96/256 3.9411 0.014 Seven-year note 95-136/256 3.8661 0.011 10-year note 92-20/256 3.7145 0.007 20-year bond 92-184/256 3.9047 -0.009 30-year bond 88-140/256 3.6311 -0.007 ============================================================
=================================================== Dollar Swap Spreads Last (bps) Net Change (bps) U.S. 2-year dollar swap 40.00 -0.25 spread U.S. 3-year dollar swap 15.25 0.00 spread U.S. 5-year dollar swap 7.50 -0.25 spread U.S. 10-year dollar swap 4.50 -0.25 spread U.S. 30-year dollar swap -34.25 -2.00 Spread ===================================================