Treasury yields climb after Waller says half-point rate hikes will continue until inflation subsides

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Public bond yields rose on Tuesday after a three-day hiatus, fueled by a false speech by a Federal Reserve official about the need to take interest rates beyond a neutral environment.

What are Treasury yields doing?
  • 10-year Treasury yield TMUBMUSD10Y,
    increased 7.5 basis points to 2.82%. Yields are moving in the opposite direction to prices.

  • 2-year Treasury yield TMUBMUSD02Y,
    rose 7 basis points to 2.54%.

  • The 30-year Treasury yield TMUBMUSD30Y,
    it also rose 7 basis points to 3.04%.

What is driving the market

The rise in yields came when Federal Reserve Governor Christopher Waller said in a speech in Frankfurt, Germany, that he wants to continue raising interest rates in half-point increments until he sees signs that inflation is going down.

“In particular, I am not removing the 50 basis point hikes from the table until I see that inflation is closer to our 2% target. And by the end of this year, I support the policy rate being at a higher than neutral level, so that it reduces the demand for products and labor, aligning it more with supply and thus helping to curb inflation, ”Waller said.

Federal Reserve Chairman Jerome Powell has said he will put half-point rate hikes on the Federal Open Market Committee in June and July, but has said the central bank will consider quarter-point rate hikes later.

Tim Duy, chief economist at SGH Macro Advisers, said the market is not sure what the Fed will do in September. “The Fed is still moving forward with rate hikes and Waller’s speech should help dispel speculation that the Fed will not continue with two more 50 bp hikes or skip a hike at the September meeting,” Duy said.

Waller’s speech also highlighted his belief that the Fed can fight inflation without raising the unemployment rate. He said that a cooling in demand stimulated by the tightening of monetary policy will lead to a sharp fall in vacancies, but only a small increase in the unemployment rate.

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