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Bond Report: Treasury yields hit highest levels since 2019 as Fed’s Powell leaves door open to half-point rate hikes

Treasurys sold off sharply Monday, briefly pushing the yield on the 10-year Treasury note above the 2.30% threshold as Federal Reserve Chairman Jerome Powell warned that policy makers were willing to boost rates in half-point increments if needed to get inflation under control.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.297%

rose as high as 2.302%, the highest since May 2019, according to FactSet, and was recently at 2.293%. That compares with 2.146% at 3 p.m. Eastern on Friday. Yields and debt prices move opposite each other.

The 2-year Treasury note yield
TMUBMUSD02Y,
2.107%

was 2.099%, compared with 1.955% Friday afternoon.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.519%

was 2.523% versus 2.417% late Friday.

Based on 3 p.m. levels, the yield on the 10-year Treasury note was up 42.4 basis points for the two weeks that ended Friday, the largest two-week jump since November 2016, according to Dow Jones Market Data. The 2-year yield rose 46.5 basis points over the same stretch, its biggest two-week climb since April 2008.

What’s driving the market?

“If we conclude that it is appropriate to move more aggressively by raising the federal-funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Powell said in remarks to the National Association for Business Economics.

The Fed chief emphasized the need to tighten monetary policy quickly, warning that upward pressure on prices from the invasion of Ukraine comes at a time of “already too high inflation.”

Major central banks, including the Fed, have signaled more concern over the ability of Russia’s war on Ukraine to stoke already strong inflation via surging prices for oil and other commodities.

On Monday, the Ukrainian government refused demands by Russia to surrender the southern port city of Mariupol as Russian forces continued to bombard Ukrainian cities. The demand by Russia came hours after Ukrainian authorities said Moscow’s forces had bombed an art school that was sheltering about 400 people.

Stiff resistance has prevented Russian forces from making a quick takeover of the country. The Wall Street Journal reported that senior U.S. officials see signs Russia is adjusting its strategy to secure territorial objectives and use leverage to pressure Kyiv to accept neutrality between Moscow and the West.

What are analysts saying?

“The Fed has already signaled a much stronger appetite to combat inflation, undicating a further six rate increases in 2022. But judging by Powell’s latest comments and those from some of the Fed officials, there is a good possibility that we may even see a 50 basis point increase in May,” said Fawad Razaqzada, analyst at ThinkMarkets, in a note.

“Let’s see if there is much appetite for that, and what plans they might have for running down the central bank’s $8.9 trillion balance sheet,” he wrote.

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