Treasury yields continued to push higher Wednesday as investors penciled in a more aggressive than previously expected round of rate increases from the Federal Reserve.
What are yields doing?
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The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.880%
was at 1.882%, compared with 1.866% on Tuesday, its highest based on 3 p.m. Eastern levels since Jan. 8, 2020, according to Dow Jones Market Data. Yields and debt prices move opposite each other.
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The 2-year Treasury yield
TMUBMUSD02Y,
1.055%
was at 1.051%, compared with 1.038% on Tuesday afternoon, which was its highest since Feb. 27, 2020.
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The 30-year Treasury bond yield
TMUBMUSD30Y,
2.191%
traded at 2.196% versus 2.185% late Tuesday.
What’s driving the market?
A sharp Treasury selloff to begin the new year has pushed yields to pre-pandemic levels as investors look for the Fed to begin lifting interest rates in March, with some penciling in a potential half-point tightening at that time.
The Federal Reserve is seen using its meeting later this month to prepare ground for lifting rates at its following policy gathering in March.
Read: Fed to use upcoming policy meeting to get ducks in a row for March liftoff
The sharp rise in yields has been blamed for unsettling equity markets, triggering selling pressure for tech and other growth stocks, whose valuations are based on expectations for cash flow far into the future. When Treasury yields rise, the value of that future cash is discounted.
After a Tuesday selloff, the tech-heavy Nasdaq Composite
COMP,
-2.60%
was down more than 7% so far in the new year, while the S&P 500
SPX,
-1.84%
declined 4% over the same period and the Dow Jones Industrial Average was off 2.7%. Stock-index futures pointed to a slightly higher start on Wednesday.
The economic calendar is light, featuring data on December building permits and housing starts at 8:30 a.m. Eastern.
What are analysts saying?
“The reason for the sharp increase in bond yields is the market’s growing expectation that the Federal Reserve will raise interest rates for the first time in the pandemic era in March, and follow this up with multiple hikes during the remainder of 2022,” said Matthew Ryan, senior market analyst at Ebury, in emailed comments.
“While it is too soon for the Fed to raise rates [at its January meeting], we now see a very good chance that policy makers will indicate a hike is on the way when the QE program draws to a close in two months time,” he said.
