Government bond yields rose Tuesday after a three-day break, lifted by a hawkish speech from a Federal Reserve official on the need to take interest rates beyond a neutral setting.
What Treasury yields are doing
- The yield on the 10-year Treasury TMUBMUSD10Y, 2.805% rose 7.5 basis points to 2.82%. Yields move in the opposite direction to prices.
- The yield on the 2-year Treasury TMUBMUSD02Y, 2.528% rose 7 basis points to 2.54%.
- The yield on the 30-year Treasury TMUBMUSD30Y, 3.005% also rose 7 basis points, to 3.04%.
What’s driving the market
The rise in yields came as Federal Reserve Gov. Christopher Waller said in a speech in Frankfurt, Germany, that he wants to keep lifting interest rates by half-point increments until he sees signs that inflation is coming down.
“In particular, I am not taking 50 basis-point hikes off the table until I see inflation coming down closer to our 2% target. And, by the end of this year, I support having the policy rate at a level above neutral so that it is reducing demand for products and labor, bringing it more in line with supply and thus helping rein in inflation,” Waller said.
Federal Reserve Chair Jerome Powell has said he will put half-point rate hikes to the Federal Open Market Committee in June and July but has said the central bank will consider quarter-point rate hikes afterwards.
Tim Duy, chief U.S. economist at SGH Macro Advisers, said the market is unsure what the Fed will do in September. “The Fed is pressing forward with rate hikes, and Waller’s speech should help erase speculation that the Fed will not follow through with another two 50bp hikes or skip a hike at the September meeting,” said Duy.
The Waller speech also was notable for his belief that the Fed can fight inflation without lifting the unemployment rate. He said a cooling in demand spurred by monetary policy tightening will lead to a big fall in job vacancies but only a small increase in the unemployment rate.