U.S. Treasury Yields Jumped on Tuesday

U.S. Treasury yields rose on Tuesday. Nevertheless, a key gauge that signals recession eased as traders weigh how fast interest rates will rise in the near future after the central bank’s Chair Jerome Powell surprised bond investors on Monday.

The Federal Reserve’s Chair stated the central bank needed to move “expeditiously” to tackle high inflation. Powell raised the possibility of 50-basis points hikes instead of six more 25-basis points this year that the Fed outlined last week.

The yield on 10-year Treasury notes rose 6.9 basis points to 2.386%. However, the gap between its yield and that on two-year notes widened to 21.8 basis points.

Earlier, the closely watched gap or yield curve narrowed to just 13.56 basis points, a dramatic flattening from the 2022 peak of 92 in January. More importantly, an inverted curve, when the two-year’s yield is higher than the 10-year, can signal an upcoming recession. 

U.S. Treasury yields and main findings

Currently, the market is pricing in a 72.2% probability that the central bank will hike the Fed fund rates by 50 basis points in May. 

Goldman Sachs expects the central bank will raise interest rates by 50 basis points at both its May and June meetings. Powell’s hawkish comments influenced its position. He alerted the market on Monday that the central bank might move more quickly than it suggested. 

On Tuesday, two-year, five-year, 10-year, and 30-year yields jumped to their highest level since 2019. For instance, the two-year U.S. Treasury yield, which typically moves in accordance with interest rate expectations, was up 3 basis points at 2.164%.

Also, the breakeven rate on the five-year U.S. Treasury Inflation-Protected Securities stood at 3.493%.

The 10-year TIPS breakeven rate stood at 2.931%, indicating the market sees inflation averaging about 3.0% a year for the next decade. 

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