has been bubbling for several months and yesterday’s economic news on prices in the services sector fueled new concerns. The bond market is paying attention, or so the renewed rise in the The benchmark 10-year rate jumped to 4.67% on Tuesday (Jan. 7), according to Treasury.gov. The rise lifted the yield to its highest level in over eight months. Meanwhile, the policy-sensitiveticked up to 4.30%, near its highest level since August.
As a result, the 2-year rate is essentially trading in line with the current Fed funds target rate, which is pegged at a 4.25%-to-4.50% range. This is the first time in nearly two years that the 2-year yield hasn’t traded below the Fed funds target rate. Clearly, the Treasury market is trying to send a message. For some perspective on what that might be, let’s review a few charts, starting with the 10-year yield. The key takeaway: it’s been clear for several months that the benchmark rate has been trending higher. The recent increase in the 50-day average above its 200-day average suggests that the recent runup will persist. As for the 2-year yield, this maturity is widely followed as a proxy for summarizing the market’s expectations forpolicy. On that basis, the market is no longer pricing in rate cuts as the 2-year rate trades in line with the target rate. For a clearer view of how the 2-year yield has fared relative to the Fed funds rate, the next chart below highlights the conspicuous change in recent days in the relationship., the risk of a revival in pricing pressure has been topical. Yesterday’s economic news fueled that concern via the strength in the DecemberConcerns about the possibility of firmer inflation risk are partly related to various policy changes planned by the incoming Trump administration is part of the mix. Overall, “You’re getting a recalibration of inflation expectations and Fed rate expectations,” says Tom Hainlin, senior investment strategist at US Bank Asset Management Grou
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