Two-year Treasury yields rise after Powell’s speech

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Two-year U.S. Treasury yields rose on Friday to their highest levels since October 2007 before stabilizing near two-month highs after the president of The Federal Reserve reiterated that the central bank will continue to raise interest rates to fight inflation.

* Jerome Powell, in a widely followed speech at the Jackson Hole Fed conference, said investors should not expect the central bank to cut interest rates until inflation is brought under control.

* “While higher interest rates, slower growth and weaker labor market conditions will bring down inflation, they will also cause some pain for households and businesses,” Powell said.

* The yield on two-year US Treasuries, which tends to move in step with interest rate expectations, rose 2.9 basis points to 3.403%, slightly below a year’s high hit in June 3 .4350%.

* Rising short-term interest rates further inverted the yield curve, often seen as a sign of an upcoming recession. The gap between 2-year and 10-year Treasury yields was trading at -37 basis points, down from -31.3 basis points before Powell’s speech.

* The 10-year Treasury bond yield was up 0.9 basis points at 3.033%, while the 30-year Treasury bond yield was down 2.7 basis points at 3.207%.

* Yields rise when bond prices fall.

* “Powell’s comments were remarkably in line with market expectations,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets. “Overall, the response is well within the recent range in nominal terms, even if the curve looks skewed to the downside.”

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