(Bloomberg) -- Treasuries plunged in late U.S. trading Tuesday after comments from Federal Reserve officials raised the perceived likelihood that the central bank will raise interest rates in the middle of next month.
Yields on two-year notes surged as San Francisco Fed President John Williams said he expects a rate boost to receive “serious consideration” when policy makers gather March 14-15 in Washington. New York Fed President William Dudley said the case for tightening monetary policy has become a lot more compelling, with most data consistent with above-trend economic growth.
The market-implied probability of a March hike soared to 76 percent, from 50 percent Monday, based on the assumption that the effective fed funds rate will trade at the middle of the new FOMC target range after the hike. Using the current effective rate of 0.66 percent and the forward OIS rate for the March meeting, the odds are roughly 60 percent, still almost double what they were two days ago. The price of the April futures contract dropped to 99.185, after opening at 99.25.
“These two guys seem to be forceful with what they're saying,” said Timothy High, U.S. strategist in New York at BNP Paribas SA, one of the Fed's 23 primary dealers. Given that monthly jobs data won't be released until March 10, less than a week before the Fed decision, “they might be trying to get a message out to the market a little early.”
The yield on the benchmark two-year Treasury, the coupon maturity that's the most sensitive to Fed expectations, rose almost 7 basis points to 1.26 percent, touching the highest since December. The 10-year yield increased to 2.39 percent.
As shorter maturities led declines, the yield curve as measured between five- and 30-year debt was the flattest since August on a closing basis.
To contact the reporters on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net, Edward Bolingbroke in New York at ebolingbrok1@bloomberg.net.
To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Mark Tannenbaum, Dave Liedtka
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
