Treasury yields ended at their highest levels in a dozen years or more on Thursday as investors continued to absorb the Federal Reserve’s message of higher-for-longer interest rates.
What happened
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
rose 3 basis points to 5.148% from 5.118% on Wednesday, after briefly touching 5.2%. The 2-year rate carved out its highest level since July 18, 2006, based on 3 p.m. Eastern time figures from Dow Jones Market Data. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 13.3 basis points to 4.479% from 4.346% as of Wednesday afternoon. The 10-year rate finished at its highest 3 p.m. level since Oct. 18, 2007. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
jumped 15.2 basis points to 4.55% from 4.398% late Wednesday. The 30-year rate ended at its highest level since April 13, 2011.
What drove markets
Treasury yields continued to climb on Thursday as investors absorbed the Federal Reserve’s projections from Wednesday, which suggested that another interest-rate increase is on the way by year-end and that borrowing costs are likely to be cut in 2024 by less than previously thought.
Read: ‘The world has changed’ as investors absorb highest Treasury yields in more than a dozen years
Fed funds futures traders are now pricing in a 45.1% probability that the central bank will hike rates by 25 or 50 basis points from the current range of 5.25%-5.5% by December, according to the CME FedWatch Tool. Policy makers are mostly expected to avoid bringing the fed funds rate target back down to 5% or lower until the second half of next year.
In U.S. economic updates on Thursday, U.S. jobless benefit claims fell to an eight-month low of 201,000 last week, with employers reluctant to lay off workers. The Philadelphia Fed’s manufacturing gauge dropped back into contraction territory in September. Existing-home sales and the U.S. leading economic index both fell for August.
In the U.K., 2-year gilt yields
BX:TMBMKGB-02Y
were up 3.1 basis points at 4.613% after Bank of England officials voted 5-4 in favor of a pause, holding rates at 5.25%.
The Bank of Japan will give its policy update on Friday.
What analysts are saying
Wednesday’s policy decision by the Fed “was a very hawkish hold,” said Matt Miskin, co-chief investment strategist of John Hancock Investment Management in Boston.
“Policy makers raised expectations for rates next year relative to their last meeting and are not going to cut as much as they previously thought. Powell suggested another rate hike this year could occur and basically painted a picture of an economy that’s accelerating,” Miskin said via phone. “If you connect the dots, the Fed is not going to be hand-holding this market, and will basically be pushing back on market expectations for rate cuts. I think markets are going to have to face their fears of a Fed that is not going to be supportive.”
This story originally appeared on Marketwatch
