2-Year Treasury surpasses 4.2%, 15-year high as Fed drives up short-term rates

Yields moved higher on Friday, with the 2-year Treasury yield reaching a new 15-year high as markets assessed the latest Federal Reserve rate hike and what it means for the economy going forward.

The policy-sensitive 2-year Treasury hovered above 4.2%, reaching a 15-year high of 4.266% earlier in the session. It last gained 12 basis points to 4.246%.

Meanwhile, the 10-year yield last traded 9 basis points higher at 3.801% and close to levels not seen since 2011.

Yields and prices move in opposite directions, with one basis point equaling 0.01%.

The surge in yields came as markets weighed the implications of the Federal Reserve’s latest policy decisions, as it signaled its readiness to accept a future recession if it stops with rising inflation.

The Fed rolled out another major rate hike of 75 basis points on Wednesday and indicated it plans to remain aggressive and raise interest rates to 4.6% in 2023 and 4.4% by the end of 2022. Central banks worldwide took over. a note from the Fed’s playbook, executing their own substantial increases in the wake of the decision.

“While we are probably much closer to the end of the rise in global rates than we are the beginning, it will still take a spike in global inflation and a slump in global economic activity for interest rates to stop. this rise and begin to fall,” Tom Essaye of the Sevens Report wrote in a note to customers Friday.

On the economic side, September flash PMI data will be released on Friday, providing markets with preliminary insight into the economic condition of the manufacturing and services sectors. The data is used as a key indicator of inflation and recession concerns, as it shows whether industries are growing or contracting, as well as supply and demand.

Analysts expect the services sector to rise after a sharp contraction in August. Meanwhile, growth in the manufacturing sector is expected to slow, after slowing almost to 2020 in the past month.

Leave a Comment