Two-Year Bond Yields Highest Since 2007, Fed Officials Talk Rate Hikes

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Yields on interest-rate sensitive 2-year Treasury bonds hit more than 14-year highs on Friday and the yield curve inverted further as Fed officials Federal stressed the need for further rate increases to curb skyrocketing inflation.

* Fed Governor Christopher Waller said on Friday that the US central bank should be aggressive with rate hikes as long as the economy “can take the hit,” signaling that he supports a “significant” rate hike. Fed’s target policy statement at this month’s meeting.

* St. Louis Fed President James Bullard also reiterated his call for a 75 basis point hike at the meeting, saying recent data showing continued strong job growth made him “lean more heavily.” towards a further increase in borrowing costs.

* Meanwhile, Kansas City Fed President Esther George advocated a “sustained monetary policy response” to high inflation.

* The comments come a day after Fed Chairman Jerome Powell reconfirmed that the central bank’s priority is to address mounting price pressures.

* The yield curve on 2-year and 10-year notes flattened 6 basis points to -25 basis points on Friday. Inversion is considered a reliable indicator that a recession is likely in the next year or two.

* A Fed report on Friday showed US household wealth fell by a record $6.1 trillion in the second quarter to its lowest level in a year as a bear market in stocks outpaced you grow additional earnings on real estate values.

* The next main focus will be Tuesday’s Consumer Price Index (CPI) data, which is expected to show that prices increased at a pace of 8.1% over the year in August, compared to 8.5 % registered in July.

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* The data will come after Fed officials enter a period of silence ahead of their meeting on September 20-21. Even if price pressures come in below expectations, analysts see it as unlikely to throw the Fed off course.

* Two-year debt yields reached a level of 3.575%, the highest since November 2007.

* 10-year note yields stood at 3.321%. They have risen from a four-month low of 2,516% on August 2, but remain below the 11-year high of 3,498% reached on June 14.

* Treasuries could come under pressure next week when the Treasury Department sells $91 billion in new debt.

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