This month’s Treasuries selloff looks poised to drive benchmark yields above two per cent for the first time since 2019 as intensifying bets on U.S. Federal Reserve rate hikes send investors rushing for the exit.
The 10-year yield has climbed 37 basis points so far in January to 1.88 per cent on Wednesday -- set for its fastest monthly rise since November 2016. The move picked up its pace this week on growing speculation the Fed will respond to rampant inflation by making its first half-percentage point increase since 2000 in March.
“It’s a done deal that 10-year Treasuries hit two per cent but the selloff is likely to slow for a bit then,” said Damien McColough, head of fixed-income research at Westpac Banking Corp. in Sydney. “Yields will definitely go higher still once the Fed delivers its first hike.”
The jump in Treasury yields is spreading to other markets as investors mull the impact of the Fed tightening faster and further than expected to rein in inflation. Global bonds have come under pressure, the dollar has strengthened and equities have sold off led by high-priced technology shares.
Benchmark U.S. yields are expected to end the year at 2.13 per cent, according to economists surveyed by Bloomberg. Futures markets are pricing in four 25-basis-point hikes in 2022.
“It’s just a guess but I expect the 10 year yield will rise to around 2.5 per cent in the next few months and maybe 2.75 per cent by year end, depending on how quickly the Fed hikes rates,” said Shane Oliver, head of investment strategy at AMP Capital. “The bond market is starting to realize that secular stagnation is over and inflation will stay higher for longer so yields will head higher.”