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TREASURIES-Two-year yields leap to 14-yr high on inflation fears

reuters.com · 06/12/2022 21:43
TREASURIES-Two-year yields leap to 14-yr high on inflation fears

- U.S. Treasuries dropped sharply in early Asia trade on Monday, with the heaviest selling in short-dated debt, as investors scrambled to price in an even steeper rate-hike path to tame inflation.

Two-year Treasury yields US2YT=RR rose more than 9 basis points (bps) to 3.1590%, the highest level since late 2007, in the wake of an unexpectedly hot May inflation reading on Friday.

Yields rise when bond prices fall.

Fed funds futures 0#FF: also fell heavily, especially contracts for the early months of next year, to show markets pricing the Federal Reserve's benchmark rate around 3.8% by May next year.

CME's FedWatch tool showed a roughly 1/4 chance of a 75 bp hike when the Fed meets on Wednesday, which would be the biggest single-meeting hike since 1994.

Monday's moves narrowed the gap between the two-year and 10-year yield US2US10=TWEB by about five bps to 3.9 bps, flattening the curve in a worrying signal that investors expect the looming short-term hikes will hurt longer term growth.

The selling also set other markets on edge, knocking S&P 500 futures ESc1 1.5% lower and lifting the U.S. dollar to a fresh 20-year high on the Japanese yen JPY=EBS. MKTS/GLOB

Soaring food and energy prices drove the largest year-on-year gain in U.S. consumer prices since 1981 last month, against an expectation for inflation to begin slowing down. nL1N2XX118

Ten-year yields US10YT=RR were last up 2.8 bps at 3.1930% after rising as high a 3.2010 in early trade.

(Reporting by Tom Westbrook
Editing by Shri Navaratnam)

((tom.westbrook@tr.com; +65 6973 8284;))