U.S. 10-year Treasury yields jumped to 12-year highs on Friday and two-year yields were the highest since 2007 as investors fear banks Central banks around the world continue to tighten monetary policy to deal with rising inflation.
* “We’re weighing in on the reality that we’re entering the next phase of global tightening,” said Ian Lyngen, head of US interest rate strategy at BMO Capital Markets in New York.
* Treasury yields rose in tandem with those on British government bonds on Friday, which soared after Britain’s new finance minister, Kwasi Kwarteng, unleashed historic tax cuts and a huge increase in borrowing.
* This came a day after the Bank of England raised its interest rate by 50 basis points, to 2.25%, and said it would sell around 8.7 billion pounds ($9.8 billion) of government bonds in the last quarter of 2022, becoming the first major central bank to start active sales.
* The Federal Reserve raised interest rates by 75 basis points on Wednesday, with Fed Chairman Jerome Powell vowing that he and his colleagues will “continue” their battle to reduce inflation.
* As rates rise, so do concerns about how they will affect growth and risk assets.
* “That’s going to have significant ramifications for US risk assets, we just haven’t seen it yet,” Lyngen said. “I suspect we are looking at a recalibration of expectations going forward that will ultimately end with a flatter curve, or deeper investment in the US and risk assets under pressure.”
* Yield curve inversions between 2-year and 10-year bonds touched -58 basis points on Thursday, the highest inversion in at least two decades, and traded -43 basis points thereafter, signaling fears of a imminent recession.
* The two-year yield reached 4.270%, its highest level since October 2007. The five-year yield marked 4.084%, the highest since November 2007, and the benchmark 10-year yield jumped to 3.829% , the highest since April 2010.