Treasury yields rose on Wednesday after the Federal Reserve signaled it may raise interest rates in March, the first increase in three years.
The yield on the benchmark 10-year Treasury note gained 3 basis points to 1.81%. The 30-year Treasury bond yield rose 2 basis points to 2.15%. Yields move inversely to prices and 1 basis point equals 0.01%.
The Fed said a quarter-percentage-point hike in its benchmark short-term borrowing rate is expected soon. The post-meeting statement did not provide a specific time for when the increase will come, although it looks like it could happen as early as the March meeting.
Treasury yields jumped sharply at the start of the year in anticipation of a tightening of monetary policy by the Fed. The benchmark rate increased by more than 25 basis points, from 1.51% at the end of 2021.
Additionally, the Federal Open Market Committee noted that monthly central bank bond purchases would continue at just $30 billion in February, indicating the program could also end in March as rates rise.
“The statement is innocuous,” said Mike Schumacher, head of macro strategy at Wells Fargo Securities. “Comments on the tapering were pretty much expected.”
The Fed, however, indicated in a separate statement that it would begin shrinking its balance sheet after the rate hike, a new tightening measure that many traders may have been hoping the central bank would have delayed doing right away.
“Clarity on the timing and magnitude of rate hikes, as well as the degree of balance sheet reduction, should help calm markets,” said John Lynch, CIO at Comerica Wealth Management. “We believe that left to normal market forces, the US Treasury yield curve will gradually steepen given the global cyclical recovery and less severe price pressures.”
— CNBC’s Patti Domm contributed to this market report.