Two-year Treasury yield posts longest rising streak in over a month as investors consider need for tighter Fed policy after inflation data

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The two-year Treasury yield posted its longest increase in more than a month on Wednesday, as investors digested the latest readings on US inflation and assessed the need for tighter monetary policy by the Federal Reserve.

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The gap or gap between yields of different maturities narrowed, pointing to a return to potential concerns about the economic outlook.

What is the produce doing?
What is driving the market?
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Yields to shorter-term maturities like the 2-year note climbed this week on hopes that Federal Reserve Chairman Jerome Powell, who was re-nominated for a second term by President Joe Biden on Monday, accelerated pace. There is a new mandate to bring. Towards a reduction in the Fed’s monthly asset purchases, curbing the rise in inflation and ultimately raising interest rates.

In an interview with Yahoo Finance published on Wednesday, the San Francisco Fed Chairman Mary Daly Said that a case can be made to accelerate the tapering of the central bank in December.

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Meanwhile, minutes of the November 2-3 meeting of the Federal Open Market Committee, released on Wednesday, show that some policymakers are calling on their allies to reduce bond purchases at a faster pace than the $15 billion a month schedule. Inspired, which was agreed upon in the meeting.

The yield of the 2-year Treasury note, most sensitive to changing interest-rate expectations, is hovering around its highest level since March 2020, but has not increased as much compared to the 10-year, leading to a gap between the two yields. There has been a difference. To narrow Wednesday, as of 3 p.m. Eastern Time, according to TradeWeb data. The gap between 5- and 30-year yields also narrowed, which is sometimes seen as a sign of concerns about the economic outlook.

Data released Wednesday showed the Fed’s preferred PCE inflation gauge rising at the fastest pace in 31 years. Core rate hike for 12 months of the personal consumption expenditure price index of the government rose to 4.1% from 3.7% in October. This is the highest level since December 1990.

In other data, consumers are expressing less optimism than at any other time in the past decade amid “rapidly rising inflation,” according to Richard Curtin, chief economist of the University of Michigan sentiment survey.

US weekly jobless claims fell to their lowest level since November 1969. New filings for jobless benefits fell by 71,000 to 199,000 in the seven days ending November 20. The report was released a day before Thursday was due for a holiday.

The data also showed that the US economy grew at a revised 2.1% annual rate in the third quarter. The Commerce Department said Wednesday that consumer spending and private inventory investments accounted for most of the upward revision of 2.0%.

US durable-goods orders fell 0.5% in October, the second consecutive decline. The decline stemmed entirely from lower orders for passenger aircraft, an up and down category that often distorts the level of demand underlying the economy. Meanwhile, American manufacturers such as General Motors Co. GM,
and Whirlpool Corp. WHR,
There were a lot of orders, indicating that the economy was consolidating.

Analysts say this week’s selloff in bonds, which has led to an increase in yields, was driven by seasonally lower volumes, given that the days before US Thanksgiving trade relatively low.

what analysts are saying

“We still think that market expectations for a series of rate hikes beginning in mid-2222 are over, especially when inflation will subside by that time, but the FOMC is clearly waking up to this realization. That, even if it does return to some degree, inflation is likely to remain above target for some time,” said Paul Ashworth, chief US economist at Capital Economics.


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