US Treasury yields jumped to a level not seen in nearly 30 months, as investors shifted their focus to future rate hikes amid the Federal Reserve’s hawkish stance and limited prospects for cuts next year.
The two-year yield fell 4 basis points to 4.31%, while the 10-year yield rose 8 basis points to 4.59%, its highest level since May. The steepening of the yield curve, driven by investors’ reluctance to buy longer-dated Treasuries due to sticky inflation and a resilient economy, has significant implications for the market.
Industry experts attribute the trend to the Fed’s rate cuts in recent months, as well as concerns over tax policies advocated by President-elect Donald Trump that could fuel inflation and worsen the budget deficit. The benchmark 10-year note’s yield surged above 4.5% on Wednesday after the Fed indicated a pause in cutting rates early next year.
The market is also bracing for potential rate hikes, with options traders taking on new risk amid the prospect of a hawkish pivot by the end of 2025. A $22 billion sale of five-year Treasury Inflation Protected Securities saw weak demand from non-dealers, further fueling concerns over inflation and the economy.
“The weakness in the longer-end of the curve can be credited to a combination of the Fed’s hawkishness, ongoing supply angst, and a collective unwillingness to step in front of the decisive price action,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.
Source: https://finance.yahoo.com/news/us-yield-curve-steepest-since-161334373.html