Bond Report: Two-year Treasury yield has biggest two-week gain since 2008 as investors assess Fed’s rate-hike efforts

United States

Treasury yields were mixed Friday, but posted their biggest two-week gains in years, as investors monitored developments in the Russia-Ukraine war and continued to digest the Federal Reserve’s efforts to hike rates through 2023.

Meanwhile, the widely followed spread between 2- and 10-year yields dipped below 19 basis points, one of the lowest levels since March 2020.

What are yields doing?
  • The 2-year Treasury yield BX:TMUBMUSD02Y rose 1.6 basis points to 1.955% from 1.939% on Thursday afternoon. The yield is up 20.7 basis points for the week and 46.5 basis points for the past two weeks. That’s the largest two-week gain since the period that ended April 25, 2008, according to Dow Jones Market Data.
  • The yield on the 10-year Treasury note TMUBMUSD10Y, 2.153% fell 4.6 basis points to 2.146%, down from 2.192% at 3 p.m. Eastern on Thursday. It rose 14.2 basis points this week and is up 42.4 basis points over the last two weeks — the largest two-week gain since the period that end Nov. 18, 2016.
  • The yield on the 30-year Treasury bond TMUBMUSD30Y, 2.427% fell 6.7 basis points to 2.417% from 2.484% late Thursday. It rose 5.4 basis points for the week and is up 26.9 basis points over the last two weeks — the biggest two-week gain since the period that ended June 5, 2020.
Market drivers

Treasury yields from 5 to 30 years edged lower on the day as talks between Moscow and Kyiv stalled again and Russian forces pressed on with attacks in Ukraine cities. On Friday, Russian President Vladimir Putin vowed to keep moving forward with his invasion of Ukraine.

Meanwhile, world leaders are pushing for an investigation of Russia’s repeated attacks on civilian targets, including airstrikes on schools, hospitals and residential areas. And U.S. President Joe Biden conferred with Chinese President Xi Jinping to discuss Ukraine.

Oil futures CL.1, +2.06% BRN00, +0.25%, which had pulled back sharply earlier this week, have pushed back above the $ 100-a-barrel threshold.

Read: Why this red-hot hedge-fund manager says oil can reach $ 200 per barrel

On Wednesday, the Fed delivered a widely expected quarter percentage point rate increase, penciling in 10 to 11 quarter-point hikes by the end of 2023. Some investors questioned the Fed’s ability to deliver that degree of tightening without sharply slowing the economy or tipping it into recession.

St. Louis Fed President James Bullard, the lone dissenter at Wednesday’s meeting, released a statement on Friday explaining his support for a half-point rate increase. Bullard said the Fed should aim to lift its policy rate above 3% this year, and that policy makers will “have to move quickly” or “risk losing credibility on its inflation target.”

U.S. data released Friday showed existing home sales decreased 7.2% between January and February — falling to a seasonally-adjusted, annual rate of 6.02 million. Meanwhile, the Conference Board’s index of leading economic indicators rose 0.3% in February and signaled a pickup in economic growth as the omicron variant faded and governments lifted restrictions. 

Overseas, the Bank of Japan on Friday made no changes to its ultra-easy monetary policy stance, in contrast to a wave of monetary tightening by other major central banks.

What are analysts saying?

“The market has, to a degree, called the Fed’s bluff on rate hike plans as rate hike expectations were dialed back in the immediate wake of the dot plot release and economic projections, but the Fed is indeed tightening policy and regardless of the pace of the trend, yields are going higher in the months and quarters ahead,” said Tom Essaye, founder of Sevens Report Research, in a note.