Treasury Yields Rise as Investors Digest Fed Rate Hike

Source: NYSE

U.S. Treasury yields rose on Thursday, as investors digested the Federal Reserve's decision to hike interest rates for the first time in more than three years.

The yield on the benchmark 10-year Treasury note added 1 basis point to 2.201%. The yield on the 30-year Treasury bond moved 3 basis points higher to 2.489%. Yields move inversely to prices and 1 basis point is equal to 0.01%.

The Fed approved on Wednesday a benchmark interest rate increase of a quarter of a percentage point, its first hike since 2018.

The policymaking Federal Open Market Committee (FOMC) also penciled in six more hikes in 2022, as well as factored in a reduction in its $9 trillion balance sheet.

Fed Chairman Jerome Powell at his post-meeting news conference hinted that the balance sheet reduction could start in May, and said the process could be the equivalent of another rate hike this year.

FOMC members also increased their inflation expectations, forecasting that the personal consumption expenditures price index excluding food and energy will see 4.1% growth this year, compared with the 2.7% projection in December 2021. 

Charles Hepworth, investment director at GAM Investments, said on Wednesday that while the Fed "may need to appear hawkish with now stubbornly high inflation, it's obvious that had the committee acted sooner they wouldn't have needed to act so aggressively now."

"With a slowing economy and worsening financial conditions, it's highly unlikely that their projected trajectory will be delivered on," he added.

The 10-year Treasury yield spiked to 2.24%, its highest point since 2019, but then retreated.

Developments on Russia's invasion of Ukraine also continue to be a focus of investors' attention, with reports of progress on cease-fire negotiations on Wednesday. U.S. President Joe Biden approved additional weapons to be sent to Ukraine.

The Labor Department reported Thursday that the number of jobless claims filed last week totaled 214,000, which was better than the Dow Jones estimate of 220,000 and a decline from 15,000 in the previous week.

In other economic news, housing starts totaled 1.77 million, slightly higher than the estimate of 1.7 million, while building permits totaled 1.86 million, also slightly beating a 1.85 million estimate.

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