Treasury Yields Plow Higher As Traders See First Fed Cut Later
Treasury yields surged as data showing strength in US business activity and a tight labor market sparked traders to push back the timing for Federal Reserve interest-rate cuts until the end of this year.
(Bloomberg) -- Treasury yields surged as data showing strength in US business activity and a tight labor market sparked traders to push back the timing for Federal Reserve interest-rate cuts until the end of this year.
The Fed-policy sensitive two-year yield rose more than 8 basis points to touch 4.95%, its highest since May 2. Meanwhile, rates across maturities were up at least 5 basis points, causing the yield curve to flatten. Trading volume was below average heading into a long weekend, with US markets set to shut Monday for Memorial Day.
Data Thursday showed US business activity accelerated in early May at the fastest pace in two years. That came on the heels of data showing initial applications for US unemployment benefits fell last week.
“The short end is fearful of the Fed,” said Andrew Brenner, head of international fixed income at NatAlliance Securities LLC.
Overnight index swaps contracts tied to upcoming Fed policy meetings now fully price in a full quarter-point rate in December, versus November a day earlier. And for all of 2024, the contracts imply a total of 33 basis points of rate reductions — compared to around 39 basis points at the close on Wednesday.
The added pressure on Treasuries comes after selling Wednesday following the release of minutes from the Fed’s latest policy meeting, which showed “many” officials questioning whether policy was restrictive enough to bring inflation down to target.
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