US Treasury Yields Surge Amid Concerns Over Austerity and Inflation... Highest Since 2019

[Asia Economy New York=Special Correspondent Joselgina] Ahead of the U.S. Federal Reserve's (Fed) interest rate hike, the yield on the U.S. 10-year Treasury note reached its highest level since July 2019.

According to economic media CNBC, on the 14th (local time) in the bond market, the 10-year Treasury yield rose 12 basis points (1bp equals 0.01 percentage points) from the previous session to 2.142%. This is the highest level since July 2019. The 30-year yield increased by 11bp to 2.481%.

This is interpreted as a reflection of expectations for a rate hike ahead of the Fed's Federal Open Market Committee (FOMC) regular meeting scheduled for the 15th-16th. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market is pricing in more than a 96% chance of a 0.25 percentage point rate hike this month.

Additionally, the prolonged Ukraine invasion has increased inflationary pressures, which is also considered a factor driving up Treasury yields.

U.S. Treasury yields had been rising this year on expectations of Fed rate hikes but fell to the 1.7% range after Russia's invasion of Ukraine last month, as safe-haven demand became prominent.

The 2-year Treasury yield, which is sensitive to monetary policy, rose to the 1.86% range on the day. However, the current spread between the 10-year and 2-year yields has narrowed to within 30bp. Fiona Sinkota, Chief Analyst at City Index, said, "The Fed's rate decision will be made this week and it will be very important," adding, "There is growing fear of stagflation and inflation."

On the same day, the German 10-year government bond yield (0.37%) also rose 12bp due to concerns over worsening inflation.

Meanwhile, the New York stock market mostly closed lower, cautious of the impact of the Ukraine situation and the Fed's rate hike moves. Technology stocks such as Apple, Nvidia, and Tesla saw notable declines, with the Nasdaq Composite and S&P 500 indices closing down 2.05% and 0.74% respectively from the previous session. The Dow Jones Industrial Average, composed of blue-chip stocks, remained flat.