The yield on the 2-year U.S. Treasury note climbed for a seventh straight trading session on Friday to its highest levels since October 2007, with investor unease growing ahead of an expected interest rate hike by the Federal Reserve next week.
The rise in the 2-year yield continued to outpace that of the 10-year yield, driving a deeply inverted Treasury curve that’s flagging worries over the economy.
What yields are doing
The yield on the 2-year Treasury note
rose 4 basis points to 3.905%. The yield climbed 8.9 basis points on Thursday to 3.871%, marking the highest level since Oct. 31, 2007.
The yield on the 10-year Treasury note
rose 2 basis points to 3.473% from 3.458% on Thursday, which marked the highest since June 14, a gain of 4.7 basis points.
The 30-year Treasury bond yield
rose 2 basis points to 3.487% from 3.479% late Thursday.
What’s driving the market?
Traders are bracing for next week’s Federal Reserve meeting where some are calling for a 100 basis point rise in the benchmark policy rate, following a surprise jump in U.S. inflation in August earlier this week that sent stocks to their worst one-day performance since June 2020.
Fresh economic gloom came from FedEx
whose shares slid 20% in premarket after the global shipper late Thursday withdrew its annual outlook and forecast sharply lower quarterly profit and lower revenue. FedEx’s warning also weighed premarket trade on Wall Street open, with stock futures
in the red.
Yields have been rising on expectations the Federal Reserve will hike by at least 75 basis points next week and keep rates higher for longer. That has intensified a yield curve inversion between 2 and 10-year Treasurys, where the former is more than 40 basis points higher than the later.
Fed funds futures traders are pricing in a 20% chance of a jumbo-size hike of 100 basis points, or a full percentage point, and an 80% chance of a 75-basis-point increase, according to the CME FedWatch Tool.
A busy data week will finish with the University of Michigan’s consumer sentiment index, due at 10 a.m. Eastern. That report will include a reading on closely watched inflation expectations.