Rising 2-Year Treasury Yield Keeps Curve Deeply Inverted as Investor Unease Deepens
By Vivien Lou Chen and Barbara Kollmeyer
The yield on the 2-year U.S. Treasury rose for a seventh consecutive trading session on Friday and again rose above its highest levels in nearly 15 years, as investor unease grew ahead of an expected rate hike of interest by the Federal Reserve next week.
The rise in the 2-year yield continued to outpace that of the 10-year yield, resulting in a deeply inverted Treasury curve that eased worries about the economy.
What Do Yields Do
What is driving the market?
Traders are bracing for next week’s Federal Reserve meeting, where some are calling for a 100 basis point hike in the benchmark benchmark rate, following a hotter-than-expected US inflation report for August on Tuesday, which sent stocks to their worst one-day performance since June. 2020.
Further economic gloom came from FedEx Corp. (FDX), after the global shipper withdrew its full-year outlook late Thursday and forecast sharply lower quarterly profit and lower revenue. FedEx’s warning weighed on the broader stock market, with major indexes all lower in morning trading. Read: “Simply Stunning”. FedEx hit by downgrades, price target cuts as warning shocks Wall Street
Yields rose on expectations that the Federal Reserve will hike at least 75 basis points next week and hold rates higher for longer. This intensified an inversion of the yield curve between 2- and 10-year Treasuries, where the former is more than 40 basis points higher than the latter.
According to the CME FedWatch Tool, Fed Funds futures traders are predicting a 22% chance of a whopping 100 basis point increase, or a full percentage point, and a 78% chance of a 75 basis point increase. basis points.
In Friday’s data, the University of Michigan consumer sentiment index hit a five-month high in September, while 5-year inflation expectations slipped to 2.8% from 2.9 %.
What the strategists say
“All things being equal, we continue to see upward pressure on initial yields as we approach the next Fed hike,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery. “Unsurprisingly, 2s/10s continued to drift lower, reaching -45bp overnight and very quickly placing the -58bp extreme of the cycle within the range. The depths of the reversal will be tested short term and a target of -75 bp remains our base case as the 2-year sector adjusts to the potential for another 75 bp hike in November and the Fed’s updated terminal rate outlook.”
– Vivien Lou Chen
(END) Dow Jones Newswire
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