Treasury Yields Surge as Economy Gains Momentum Ahead of Fed Rate Hike
By Treasury yields rose sharply on Tuesday, with the two-year note rate climbing as much as 12 basis points to nearly 4.64%, the highest since November and within 20 basis points of last year’s multiyear high. The 10-year Treasury yield rose 5 basis points to 3.81%, a 2023 high, while the five-year note’s yield rose as much as 12 basis points to 4.03%. The rise in yields comes as the economy shows signs of recovery, with the consumer price index climbing 0.5% in January, up 6.4% from a year earlier.[0]
The Federal Reserve has raised its policy rate eight times since March 2022, most recently to a range of 4.5%-4.75% on Feb. 1, after dropping the lower bound to 0% at the onset of the pandemic.[1] Federal officials are expecting to make a few more hikes of a similar size, and then they will pause to allow higher rates to become established.[2] The CME FedWatch Tool projects an 87.8% probability of a quarter-point Fed rate hike in March, bringing the Fed’s target rate to between 4.75% and 5%.[3] The tool also puts odds around 20% of rates rising to 5.50% – 6% by the Fed’s late July meeting.[3]
Dallas Fed President Lorie Logan and St. Louis Federal President James Bullard have signaled that the U.S. central bank has further to go in raising rates, with two policymakers saying on Thursday that the Fed likely should have lifted interest rates more than it did early this month.[4] Federal Reserve Chair Jerome H. Powell said at the Economic Club of Washington, D.C. last week that the lengthy process of getting inflation down is probably “not going to be smooth. It’s probably going to be bumpy.”[2]
This week, investors on the corporate side were examining earnings reports in detail.[5] In 2022, Airbnb (ABNB) made headlines when they reported record sales in the fourth quarter, achieving their first profitable year.[5] Executives presented a forecast for the current quarter that was better than anticipated, attributing the strength of the demand to post-pandemic travel.[5] The stock market increased by almost 11[5] In commodities markets, oil continued to barrel lower as the dollar rose and U.S. stockpiles were estimated to have grown.[5]
0. “Dow Jones Futures Fall But Market Rally Keeps Climbing; Shopify Leads 10 Earnings Movers | Investor's Business Daily” Investor's Business Daily, 16 Feb. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-market-rally-keeps-climbing-shopify-roku-cisco-are-key-earnings-movers
1. “Treasury yields rise as investors weigh inflation data, Fed official comments” CNBC, 16 Feb. 2023, https://www.cnbc.com/2023/02/16/us-treasury-yields-investors-await-key-wholesale-inflation-data.html
2. “CPI: Prices rise 6.4 percent in January, seventh month of easing inflation” The Washington Post, 14 Feb. 2023, https://www.washingtonpost.com/business/2023/02/14/inflation-easing-cpi-january/
3. “Hot Retail Sales Join Hot Jobs Data—How Will the Fed Respond?” The Ticker Tape, 15 Feb. 2023, https://tickertape.tdameritrade.com/market-news/hot-retail-sales-join-hot-jobs-data-how-will-the-fed-respond–19393
4. “Dollar jumps to six-week high on higher rate expectations” CNBC, 17 Feb. 2023, https://www.cnbc.com/2023/02/17/dollar-jumps-to-six-week-high-on-higher-rate-expectations.html
5. “Stock market news today: Stocks rise after strong retail sales data” Yahoo News, 15 Feb. 2023, https://news.yahoo.com/stock-market-news-today-february-15-2023-130622082.html
