U.S. Treasury Yields Fall Thursday as Markets Regain Confidence in the Fed’s Inflation Fight

U.S. Treasury yields pulled back on Thursday morning as investors showed growing confidence that the Federal Reserve is determined to bring inflation back to its 2% target — one day after the first interest-rate hike since 2023.

The U.S. central bank raised its benchmark rate by a quarter point on Wednesday, to a range of 3.75%–4%, in a unanimous vote of the Federal Open Market Committee. The prospect of another hike within the year, signaled by policymakers’ forecasts, reinforced investors’ confidence that the Fed is taking its fight against inflation seriously.

The 2-year Treasury yield, which tracks Fed moves most closely, fell 1.8 basis points to 4.707%, after a 6.5-point jump a day earlier; the 10-year yield pulled back 1.4 points to 4.989%, according to Tradeweb data — levels below Tuesday’s peak of 5.041%, the highest since 2007. “The committee’s unanimous vote says more than the 25-point hike itself,” said Natalia Lojevsky of CIFC Asset Management, adding that the 12 members’ agreement confirms a higher neutral rate.

Still, the main drivers of the recent bond selloff — high oil prices and large debt levels — remain in force. Money markets are pricing in three more rate hikes over the next 12 months, according to LSEG, while economists such as Steve Rick of TruStage urge the Fed to give this hike time to work before deciding on further tightening. In Europe, meanwhile, yields rose slightly and investors await the Bank of England’s decision.

Source: Wall Street Journal