Once again during the hoped-for year of the bond, investors in Treasury debt are looking at losses as long-maturity yields approach their 2022 highs.
In the market for inflation-protected Treasury debt, the 10-year real yield exceeded 1.9 per cent, a new high since 2009. Insulated from the effects of inflation, real yields represent the risk-free rate of return investors demand.Upward pressure on real and nominal yields from strong economic growth is being exacerbated by growth in the supply of Treasuries as the Fed sheds some of its holdings, necessitating larger auctions to the public.
The Fed last month raised the policy rate to 5.25 per cent-5.5 per cent. Swaps referencing future Fed meeting dates continue to anticipate rate cuts in 2024, however the amount of easing priced in has been reduced to about a percentage point. With regard to Treasuries, the Fed via it’s QT is allowing up to $US60 billion a month roll off its balance sheet.