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Treasury Yields Rise As Chances Of Fed Rate Hike In June And July

May 25, 2023
minute read

The 2-year Treasury yield, which is closely tied to Federal Reserve policy, experienced an increase on Thursday as traders adjusted their expectations for additional interest rate hikes by the central bank until July.

Here are the changes in Treasury yields:

  • The yield on the 2-year Treasury rose nearly 12 basis points to 4.46% from Wednesday's level of 4.343%.
  • The yield on the 10-year Treasury increased by 4.4 basis points to 3.761% from 3.717%.
  • The yield on the 30-year Treasury climbed by 1.2 basis points to 3.976% from 3.964%.

Several factors influenced the U.S. government bond market, including concerns about the debt ceiling and the Federal Reserve's monetary policy.

In response to the debt-ceiling deadline, Fitch Ratings placed the U.S.'s AAA credit rating on watch for a potential downgrade. This news caused the yield on the 1-month Treasury bill maturing on June 20 to ease by 7 basis points to 5.641%, nearing recent highs.

Traders reacted to the possibility of a technical default by selling Treasury bills maturing on June 1, driving their yields to multi-decade highs of 7.226% by late Wednesday.

Additionally, market participants analyzed the minutes of the latest Federal Reserve meeting and comments from Fed officials. This led to an increased likelihood of interest rate hikes in June and July.

According to the Trade Algo, the market is pricing in a 45.8% probability of a 25 basis point rate hike, bringing rates to a range of 5.25% to 5.5%, on June 14. Furthermore, traders see a 19.3% chance of a similar rate hike occurring in July.

Adan Harris
Managing Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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