Two-Year Treasury Yield Touches 15-Year High

US Treasury yields rose this week as investors waited for new economic data and braced themselves for additional interest rate hikes by the Federal Reserve.

The yield on the benchmark 10-year treasury climbed by seven basis points to 4.066%. The two-year treasury traded at 4.889%, even touching its highest level since July 2007 earlier in the trading session.

Yields and prices have an inverse relationship. When the bond price is lower than the face value, the bond yield is higher than the coupon rate.

Investors are preparing for the probability of more interest rate hikes. Not only that, but they also expect rates to stay elevated for longer.

A rise in labor costs and a drop in jobless claims reported early in the week suggest the Fed will raise its benchmark interest rate another 0.25 percentage point at the end of the month.

Even state Federal Reserve officials are weighing in, with the President of the Atlanta Fed Raphael Bostic saying he was strongly in favor of sticking with quarter-point hikes, adding that if rates

remained high well into 2024, it would be a necessary discomfort.

At its last meeting, the Fed hiked rates by 25 basis points. This marked a deceleration in comparison to the last five increases that included a run of four 75-basis-point hikes followed by a 50-basis-point hike.

Many investors have been concerned about continued rate hikes dragging the US economy into a recession. Now, with the inflation problem becoming “sticky,” market participants must brace for high rates as the medium-term norm.