By
Steve Muchoki
April 16th, 2024
The sharp spike in the Treasury yield has put severe pressure on the market as Dow Jones tanked another 280 points in the early morning Tuesday trade.
On Tuesday, January 18, the early morning data shows that the ten-year US Treasury yield has surged to its two-year high at 1.83%. As the CNBC post explains:
“The yield on the benchmark 10-year Treasury note soared 5 basis points to 1.8305% at 3:40 a.m. ET. The yield on the 30-year Treasury bond climbed 3 basis points to 2.1492%. Meanwhile, the 2-year rate topped 1% for the first time in two years, hitting 1.0364%. Yields move inversely to prices and 1 basis point is equal to 0.01%”.
The surge in the US Treasury Yield comes amid the hints of aggressive measures likely ahead this year from the Federal Reserve. As a result, investors seem to be preparing early for these measures. With inflation soaring high, expectations are that the Fed will announce more interest rate hikes than expected.
Last week speaking to the US Senate, Fed Chairman said that he sees a series of interest rate hikes this year. This shall also be followed by a pullback in other economic support measures.
The surge in the US Treasury Yield has put strong pressure on the market. In the early trading hours on Tuesday, the Dow Jones Futures is already 280 points down.
Expert Opinions on Fed Rate Hikes
Speaking to CNBC last week, Philadelphia Fed President Patrick Harker said that he expects the central bank to raise rates 3-4 times this year. He further added that inflation is more persistent than the earlier expectations.
James Athey, senior investment manager at Aberdeen Standard Investments said that there could be multiple reasons behind the sudden spike in the US Treasury Yields. In an email to CNBC, Athey writes:
“The reality is that the market is still adjusting to the Fed’s ongoing hawkish evolution”. The speculation that Fed might hike rates by 50 basis points through March 2022, “are driving the front end to reprice which is dragging all yields up – though notably still the curve is flattening”.
“Technically we look a little bit stretched given the pace of this repricing so I expect to see some consolidation around here – especially as the Fed is in blackout and they are the main driver of higher yields at the moment,” added he.
JPMorgan CEO Jamie Dimon recently stated that the Fed could hike rates as many as seven times this year.