NEW YORK: The US Treasury 10-year yield hit a three-year high on Friday above 2.7% and the two-year/10-year spread remained near its widest this week as traders bet on a more hawkish stance from the Federal Reserve.
The 10-year yield hit 2.73%, its highest since March 2019, and the yield on 10-year inflation-protection securities was within 15 basis points of turning positive for the first time in over two years.
The sharp move higher in yields this week started on Tuesday after comments from dovish Fed Governor Lael Brainard shifted the focus from rate hikes to the runoff of the fed’s balance sheet.
“Right now the biggest theme is a momentum trade, where yields are pushing higher,” said Guy LeBas, chief fixed income strategist at Janney in Philadelphia.
He said the recent move higher in yields “reflects perceptions that the Fed is set to do more than just what’s necessary to reduce inflation, but also possibly what’s necessary to slow economic growth.” Some technical indicators show yields at an inflection point, meaning they could struggle to move much higher. But if they do there would be little technical resistance to take another leg up.
Yields on the 2-, 5- and 10-year Treasuries have this week hit multi-year highs, and the 2/10 yield spread turned positive after having inverted late last week.
Fed officials mostly agreed in their March meeting to cut up to $95 billion a month from the central bank’s asset holdings as another tool in the fight against inflation, including up to $35 billion in mortgage-backed securities.
The yield on 10-year Treasury notes was up 4.6 basis points to 2.700% while the 2-year note yield was up 3.3 basis points at 2.495%, leaving the 2/10 spread at 20.51 basis points.
The near 27-basis-point widening of that spread so far this week is the most for any week back to June 2013, and follows last week’s 27.5 basis point tightening that inverted the curve, the sharpest weekly tightening since September 2011.
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