The yield on US Treasury bonds has increased significantly, while investors continue to assess the prospects for the Fed's monetary policy and are waiting for the speech of Fed policymakers.
The yield on 5-year Treasury bonds rose by 8.9 basis points, reaching 4.073%, while the yield on 30-year bonds was 3.655% (+4.3 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, increased by 7.0 basis points to 4.284% (a new 15-year high), while the yield on 10-year bonds increased to 3.767% (+7.0 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 52 basis points.
Last week, the Fed decided to raise interest rates by 75 basis points to 3.00%-3.25% and predicted a more significant rate hike than many traders expected. The Fed has also given a clear signal that it is ready to tolerate a recession as a necessary compromise to restore control over inflation. The CME FedWatch Tool shows that markets expect further rate hikes in the future: the probability of another 75 basis point hike in November is estimated at 74.8%.
Today, the focus of investors' attention will be the speeches of the president of the Federal Reserve Bank of Boston Susan Collins, the president of the Federal Reserve Bank of Atlanta Rafael Bostic and the president of the Federal Reserve Bank of Cleveland Loretta Mester. Economists note that investors will carefully analyze the speeches of policymakers in an attempt to get any clues about the Fed's further actions.