THE US Treasury market notched a record annual loss in 2022, fueled by inflation pressures that prompted the Federal Reserve to hike its overnight benchmark by more than four percentage points.
For 2023, many US interest-rate strategists expect Treasuries will extend their recent rally, dragging yields lower and steepening the curve in the second half of the year so long as labor-market conditions soften and inflation ebbs further. In January, swap contracts referencing Fed meeting dates priced in four quarter-point rate increases over the course of the year.
Russia’s invasion of Ukraine in February arrested the selloff temporarily, but it resumed as the price of crude oil jumped to the highest level in more than a decade, presaging higher gasoline prices; agricultural commodity costs also soared. Five-year inflation expectations implied by yields on Treasury inflation-protected securities peaked in March at more than 3.7 percent, and retreated to about 2.38 percent by year-end.