(Bloomberg) — The U.S. bond market’s recovery from the highest yield levels of the year was halted Thursday by a Federal Reserve official’s mere mention of the possibility of an interest rate hike.
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New York Fed President John Williams — in response to a question about whether the central bank will resume rate hikes — said, “that’s not my base case.” He added, however, that “if the data tells us that we would need higher interest rates to achieve our goals, then obviously we would want to do that.” Williams spoke at a conference in Washington.
Yields on Treasury bills – already rising after the latest US economic data – then rose further, led by those on two-year bills, which climbed 5 basis points to reach almost 4.99%. It peaked this week at just over 5%, the highest level since November, after Fed Chairman Jerome Powell appeared to endorse the bond market’s recent reduction in expectations for rate cuts. interest this year.
“We’ve been this round trip in terms of Treasury yields and we’re back where we started a few months ago,” Aoifinn Devitt, Moneta’s chief global markets strategist, told Bloomberg Television. “It just calls everything into question.”
Swap rates that predict Fed decisions rose slightly on Thursday, incorporating a cumulative 38 basis points of rate cuts between now and the December policy meeting, up from 43 basis points at Wednesday’s close. A first reduction of a quarter point remains planned for the November political meeting.
Market-implied odds of another Fed rate hike – after the 11th from March 2022 to July 2023 – remain near zero.
Economic indicators in recent weeks, showing a strong jobs market, persistent inflation and stronger-than-expected retail sales, have sown concerns about whether the Fed will succeed this year in implementing the cuts. rate of three-quarters of a point that it forecast in March.
The Treasury index has given investors losses of nearly 2% so far this month, erasing the 1.3% advance recorded in March, according to data compiled by Bloomberg.
–With the help of Edward Bolingbroke.
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