(Bloomberg) Treasury yields resumed their rise on Thursday and benchmark rates increased as traders protect themselves from the possibility of the Federal Reserve tightening monetary policy more sharply at upcoming meetings.
Two-year performance rose 14 basis points to a new cycle high close to 2.72%, and five-year performance rose to almost 3%, the highest level since the end of 2018, as operators discounted rate increases of 50 basis points at each of the next three meetings, in May, June and July. The market also began to discount the first sign of a 75-base-point rate hike at policy meetings in May or June. Selling pressure extended along the Treasury curve, and the 7-year yield rose 13 basis points to 3%.
The renewed bearish tone in the bond market was partly driven by a liquidation of the eurozone's public debt due to higher expectations of rate hikes later this summer in the region. German two-year performance rose to 0.18%, its highest level since 2014 and from -0.7% in March. The British gilt's two-year performance rose 16 basis points to 1.72%, its highest level since 2009.
Operators are also waiting to hear Fed President Jerome Powell, who will speak with ECB President Christine Lagarde on an IMF panel at 1 p.m. Powell's comments will mark the last public appearance of a Fed official before the May 4 meeting and are expected to solidify the expectations of a half-point increase in the rate from its current range of 0.25% to 0.5%. Traders are also on the lookout for any details about the central bank's plans to reduce its balance sheet by $9 trillion.
In total, the US rate market now expects additional rate hikes of 2.42 percentage points by the December Fed meeting, an increase of some 30 basis points since Monday's close. Selling pressure at the front was partly triggered by large block sales, both in the two-year note and in the eurodollar futures contracts as of September 2022. The Fed's OIS contracts discount rate increases of 105 basis points over the next two monetary policy meetings, or 5 additional basis points more than two 50-basis point rate hikes.
Original Note:
Treasury Yield Surge Vaults Five- and Seven-Year Rates Over 3%
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