Treasury yields climb as fear grows that Fed rate cuts are off the table
Treasury yields jumped on Friday as investors began to fear the Fed would not cut interest rates at all this year as war in the Middle East threatens to push inflation higher.
The yield on the 10-year Treasury note, a gauge of U.S. government debt, rose nearly 10 basis points to 4.382%. The 2-year bond yield, which is more sensitive to short-term Fed interest rate decisions, traded at 3.915%, up over 8 basis points. Even the 30-year bond yield rose almost 10 basis points to 4.948%.
One basis point is equal to 0.01%, or 1/100 of 1%, and yields and prices move in opposite directions.
The sell-off in bonds came after Iran and Israel exchanged strikes overnight and Iran launched new attacks on Kuwait and other energy facilities in the Persian Gulf. Although the rise seems to have no end, investors expect the Fed to take a more hawkish stance as high global oil prices reshape the economic environment.
“Domestically, the environment is also less friendly than it was a few weeks ago because the Fed has reversed course. The market has basically eliminated all rate cuts for this year and is now pricing in the possibility of an increase,” Baird investment strategist Ross Mayfield told CNBC.
Mayfield pointed out that interest rate futures investors are currently pricing the chance of a rate hike in June at almost 1 in 5, and there is no possibility of a rate cut. CME FedWatch tool.
Inflation was already running above the Fed’s target even before energy prices rose with the outbreak of the Iran war on February 28. The Fed’s rate-setting Federal Open Market Committee voted 11-1 on Wednesday to leave the key interest rate unchanged at its current level of 3.50% to 3.75%.
Central banks in Europe also kept interest rates steady this week as policymakers grappled with the impact of war and markets priced in rate hikes this year to contain higher prices.
Oil prices weakened slightly on Friday due to the influence of the USA West Texas Intermediate prices fell 1.2% to $94.99 per barrel and Brent crude oilThe global indicator fell 1.3% to $107.28. Before the attacks on Iran began, Brent was trading at around $72.50 per barrel.
Treasury Secretary Scott Bessent stated that US sanctions on Iranian crude oil stored in tankers may be lifted to relieve price pressure. Israeli Prime Minister Benjamin Netanyahu said his country was helping the United States “with intelligence and other means” to reopen the Strait of Hormuz.
