An increase in the performance of Treasury bond American currency with a two-year maturity surprised the New York market by reaching its highest point in almost two months.
This movement in the financial market was driven by the perception of investors that the interest rates will have to be maintained at higher levels during a prolonged period to counteract the growing inflation. This trend develops online with steady focus expressed by the president of the Federal Reserve.
Jerome Powellat the helm of the Federal Reserve, delivered a speech on Friday during the symposium on jackson holein which he stated that the institution could be obliged to further raise interest rates with the aim of cooling an inflation which is still excessive.
Nevertheless, Powell vowed to act prudently in upcoming meetings, carefully assessing both the progress made in easing inflationary pressures and the risks that may arise from the unexpected strength of the US economy.
Bonds: what’s behind the rise
The two-year bond yield, which reflects expectations around interest ratesreached 5.1%, and then recorded an increase of 2.4 basis points and stabilize in that range.
The yield curve between two-year and ten-year bonds continued to show a reversal, marking a differential of -88.20 basis points, which equals the margin observed on August 10. This additional investment reflected the growing anticipation of further interest rate increases.
Gennady Goldbergan analyst at TD Securities in New York, commented: “A lot of this phenomenon is due to the reassessment of the probabilities of rate increases. Following Powell’s remarks, the market is pricing in a higher probability of additional hikes throughout 2023 and is also looking at the possibility of some cuts in 2024.”
The current week will also be influenced by the offer of Treasury bond, since auctions will be carried out for a total of 127,000 million dollars in debt. This figure is divided into 45,000 million dollars in two-year bonds and 46,000 million in five-year bonds on Mondayplus $36 billion in seven-year bonds on Tuesday.
Regarding the reference yields, ten year bonds experienced a decrease of 2.1 basis points, reaching 4.218%, while 30-year bonds fell 2.1 basis points, reaching 4.274%.
Source: Ambito
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