U.S. Treasury yields climbed on Thursday, with the benchmark rate hitting a two-year high, after key inflation data showed hotter-than-expected price pressures.
The yield on the benchmark 10-year Treasury note jumped 6 basis points to hit a session high of 1.99%, the highest level since August 2019. The yield on the 2-year Treasury bond, the most sensitive duration to interest rates, surged 10 basis points to 1.45%. Yields move inversely to prices and 1 basis point is equal to 0.01%.
Treasurys
The consumer price index, which measures the costs of dozens of everyday consumer goods, rose 7.5% compared to a year ago, the Labor Department reported Thursday.
That compared to Dow Jones estimates of 7.2% for the closely watched inflation gauge. It was the highest reading since February 1982.
“Inflation is not backing off,” said Michael Schumacher, Wells Fargo’s director of rates strategy. “People are really spooked. Look at the two-year Treasury. It’s a pretty easy bellwether… I wouldn’t say it’s unglued but it’s certainly pricing in a ton from the Fed.”
The benchmark Treasury yield has spiked a great amount in 2022, rising more than 40 basis points from 1.51% at the end of last year. In February alone, the 10-year rate has gained about 20 basis points from where it ended January around 1.78%.
Forecasts of hotter inflation readings have added to expectations around the Federal Reserve’s plans to tighten monetary policy.
Atlanta Fed President Raphael Bostic told CNBC on Wednesday that he foresees three or four interest rate hikes in 2022. However, he added that the central bank would have to see “how the economy responds, as we take our first steps through the first part of this year.”
In light of concerns around inflation and policy tightening, Paul Jackson, global head of asset allocation research at Invesco, told CNBC’s “Squawk Box Europe” on Thursday that he believed the 10-year Treasury yield could top 2.5% this year.
“Rising bond yields will penalize the S&P 500 more than many other major indices because of the concentration of growth stocks within that index,” he said. Jackson predicted at the beginning of the year that the S&P 500 could close 2022 lower than it started.
Separately, initial jobless claims came in at 223,000 for the week ended Feb. 5. The number is lower than a Dow Jones estimate of 230,000.
Auctions are scheduled to be held for $50 billion of 4-week bills, $40 billion of 8-week bills and $23 billion of 30-year bonds.
