Treasuries selloff intensified on Monday driving the 10-year yield to more than three-year high as investors brace for the Federal Reserve’s biggest interest-rate hike since 2000.
The yield on 10-year note on Monday climbed as much as 7.5 basis points, cross the 3% market for the first time since December 2018. The rise in long-dated yields is tightening financial conditions by triggering an increase in borrowing costs for consumer and corporate loans as well.
That’s reflected in a 18 basis point rise in the yield on 10-year inflation-adjusted Treasuries above 0.17%, the highest above zero since the early months of the pandemic, as falling commodity prices eroded demand for the securities.
“Investors are getting defensive on duration and selling the market ahead of the balance sheet announcement by the Fed,” said John Brady, managing director at RJ O’Brien, as reported by Bloomberg.
“The Fed is clearly headed for a new policy regime now, one where aggressive short-end interest rate hikes will be accompanied by a bond-runoff program that is twice as large as it was in 2017/2018.”
The 30-year bond yield rose as much as 7 basis points to 3.07% Monday, the highest since March 2019. The policy-sensitive two-year rate was up 3 basis points at 2.75%, resulting in a modestly steeper curve.
“While the Federal Reserve has been ratcheting up its hawkish rhetoric on interest rates in recent months, it will likely begin to recognize the danger of a too-aggressive monetary policy when fading fiscal stimulus and a high dollar are both already applying the brakes to the economy,” said David Kelly, chief global strategist at JPMorgan Asset Management in a note.