Treasury yields climbed to their highest levels of November on Thursday as investors weighed the prospect of more aggressive Fed rate hikes. The move reverses October's bond rally, which came as AI stocks sold off.
Fears of steeper Fed tightening hit the $32 trillion Treasury market again on Thursday, pushing yields back to their highest levels of November. Yields had tumbled in October as a sharp selloff in artificial-intelligence stocks sparked panic-buying of relatively safe Treasurys.
Bond prices and yields move in opposite directions, so the renewed selling raised yields.
Hot data revives rate-hike bets
Robert Tipp, head of global bonds at PGIM Credit, said the market had gotten too comfortable with the idea that the Fed might go light on rate hikes. Hot inflation data this week and an upswing in the labor market in October suggest otherwise, according to MarketWatch.
Fed governor Chris Waller also put a half-point rate hike in December on the table this week. Traders put the odds of that move at 15% on Thursday, but the odds of two hikes through the end of January stood above 66%, up from almost 11% a week ago, according to the CME FedWatch Tool.
Yields hit fresh highs
The 2-year Treasury yield rose 13.7 basis points to 4.86%, while the 10-year yield gained 11.4 basis points to 5.10%, according to FactSet data. The 2-year yield reached its highest level since Sept. 30, and the 10-year and 30-year yields their highest since Oct. 21, according to Dow Jones Market Data.
Investors had treated Treasurys as a safe haven amid an equity-market correction and doubts about AI. Tech stocks came under renewed selling pressure Thursday after Nvidia CEO Jensen Huang's resignation, and that did not improve the appeal of bonds.
Some buyers are holding back. Tom di Galoma of Mischler Financial Group said "Many institutional accounts are waiting for higher yields".
Auction draws decent demand
The Treasury auctioned $25 billion of 30-year bonds at noon and saw decent demand but some slippage, according to Dustin Reid of Mackenzie Investments. The auction drew a high yield of 5.441%.
The department still needs to finance a nearly $2 trillion budget deficit, and in early November it opted not to immediately cut the size of its longer-dated auctions, as some had expected.
Source: MarketWatch
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