NEW YORK: US Treasury yields rose on Friday on expectations that the Federal Reserve will continue hiking rates while the yield curve held at deeply inverted levels on concerns that tighter policy will dent economic growth.
Surprisingly strong retail sales data on Wednesday scuttled some hopes that rate hikes could be nearing an end. Yields have tumbled since data showed softer than expected consumer and producer price pressures for October.
Fed officials this week have also spoken of the need to continue raising rates in order to tame still=high inflation.
“The market significantly overreacted to the October CPI report, and the Fed tried very hard to push back through the speakers,” said Gennadiy Goldberg, interest rate strategist at TD Securities in New York.
Boston Fed President Susan Collins said on Friday that with little evidence price pressures are waning, the Fed may need to deliver another 75-basis point rate hike.
St Louis Fed President James Bullard said on Thursday that the Fed’s target policy needs to rise to at least a range between 5.00% and 5.25% from the current level of just below 4.00% to be “sufficiently restrictive” to curb inflation.
Minutes from the Fed’s November meeting released next Wednesday could offer new insight into how high officials ultimately expect to raise rates.
Fed funds futures traders are pricing for the fed funds rate to rise to 5.06% by June, from 3.83% now. Expectations of the terminal rate had dropped to 4.89% on Tuesday.
“There’s more tightening to go. I think markets still have to be persuaded of that,” said Goldberg.
Data on Friday showed that US existing home sales tumbled for a record ninth straight month in October as the 30-year fixed mortgage rate hit a 20-year high and prices remained elevated, pushing homeownership out of the reach of many Americans.
The next major economic releases, however, will be jobs and inflation data for November, which are still several weeks away.
Benchmark 10-year yields rose to 3.816%, after falling to 3.671% on Wednesday, the lowest since Oct. 5. They are down from a 15-year high of 4.338% on Oct. 21.