Friday, September 30

US yields hit new highs amid continued inflation fears


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NEW YORK — US Treasury yields edged

higher on Tuesday, reversing an early morning rally after a

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sharp rise in job openings added to investor worries about the

Federal Reserve’s aggressive monetary tightening measures.

Some US government bond yields had decreased slightly

earlier on Tuesday after inflation data from Europe which was

either within consensus or lower.

But that proved to be short-lived, with rising yield

pressures continuing to drive the market after comments by Fed

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Chair Jerome Powell on Friday that indicated the US central

bank will keep raising interest rates to fight inflation even as

that causes pain for households and businesses.

“Powell hardly hedged his hawkish views at all this time

around,” said John Vail, Chief Global Strategist at Nikko Asset

Management.

Demand for labor showed no sign of cooling as data showed

US job openings rose to 11.239 million in July, which could

keep the Fed on its aggressive monetary policy tightening path.

Benchmark 10-year Treasury yields were at

3.108%, the highest since the end of June, while two-year note

yields climbed to 3.466%, hitting a new 15-year high.

The Fed has raised its benchmark overnight interest rate by

225 basis points since March but the rapid tightening of

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financial conditions has led investors to weigh inflation

concerns against recessionary fears.

On Tuesday, Richmond Federal Reserve Bank President Thomas

Barkin said recession was a risk of the Fed’s efforts to bring

inflation down to a 2% goal, but that it does not need to be

“calamitous.”

New York Federal Reserve Bank President John Williams, who

is Powell’s No. 2 on the Fed’s policymaking panel, on Tuesday

said the Fed will likely need to get its policy rate above 3.5%

and is unlikely to cut interest rates at all next year.

“The Fed is going to do what it takes to bring inflation

down, and won’t falter in the face of an economic slowdown,”

said Dean Smith, chief strategist at FolioBeyond.

Fed funds futures’ traders on Tuesday priced in a 72.5%

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chance that the Fed will increase rates by 75 basis points next

month, and bet that rates would rise to a high of 3.9% by March

next year, with some rate cuts priced in for the second half of

next year.

The closely watched yield curve measured by the gap between

two- and 10-year yields remained strongly

inverted at minus 36 basis points. An inversion is seen by many

as a reliable signal of an approaching recession.

August 30 Tuesday 3:00PM New York / 1900 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 2.8825 2.9442 -0.005

Six-month bills 3.245 3.3449 -0.016

Two-year note 99-150/256 3.4661 0.039

Three-year note 99-6/256 3.4751 0.026

Five-year note 99-78/256 3.2769 0.014

Seven-year note 99-106/256 3.2192 0.004

10-year note 96-244/256 3.1081 -0.002

20-year bond 98-100/256 3.4875 -0.012

30-year bond 95-204/256 3.2197 -0.027

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

US 2-year dollar swap 35.50 1.25

spread

US 3-year dollar swap 14.50 1.00

spread

US 5-year dollar swap 8.25 0.25

spread

US 10-year dollar swap 9.00 0.50

spread

US 30-year dollar swap -28.00 1.00

spread

(Reporting by Davide Barbuscia; editing by Jonathan Oatis)

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