2-year Treasury tops 4.2%, a 15-year high as Fed jolts short-term rates higher

The yield on the 2-year Treasury note notched a new 15-year high on Friday as markets assessed the Federal Reserve’s latest rate hike and what it means for the economy going forward.

Yields marched higher earlier in the session but last traded off the session’s highs and slightly lower.

The policy-sensitive 2-year Treasury hit a fresh 15-year record of 4.266% earlier in the session but was last trading off that high at 4.119%.

Meanwhile, the yield on the 10-year hit an 11-year high of 3.829% earlier in the session but last traded more than 1 basis point lower to 3.693%.

Yields and prices move in opposite directions, with one basis point equaling 0.01%.

The climb in yields came as markets weighed the implications of the Federal Reserve’s latest policy decisions as it signals its willingness to accept a recession ahead if it stops surging inflation.

The Fed on Wednesday delivered another large 75 basis point interest rate hike and indicated it intends to stay aggressive, bumping up interest rates to 4.6% in 2023 and 4.4% by the end of 2022. Global central banks took a note from the Fed’s playbook, implementing their own substantial hikes in the wake of the decision.

“While we are likely much closer to the end of the increase in global rates then we are the beginning, it’s still going to take a peak in global inflation and a drop in global economic activity for yields to stop this rise and begin to decline, wrote Tom Essaye of the Sevens Report in a note to clients Friday.

On the economic data front, September flash PMI data is set to be released on Friday, giving markets preliminary insight into the economic state of the manufacturing and services industries. The data is used as a key indicator for inflation and recession concerns as it reflects whether industries are growing or shrinking, as well as supply and demand.

Analysts are expecting the services sector to inch higher after contracting sharply in August. Meanwhile, growth in the manufacturing industry is set to drop, after slowing down close to 2020 levels last month.


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