2-year Treasury tops 4.2%, a 15-year high as Fed jolts short-term rates higher

Yields climbed on Friday and the yield on the 2-year Treasury note notched a new 15-year high as markets assessed the Federal Reserve’s latest rate hike and what it means for the economy going forward.

The policy-sensitive 2-year Treasury hit a fresh 15-year record of 4.266% earlier in the session but was last trading at 4.19%.

Meanwhile, the yield on the 10-year hit an 11-year high of 3.829% earlier in the session but last traded two basis points lower at 3.685%.

Yields and prices move in opposite directions, with one basis point equaling 0.01%.

The climb in yields came as markets weighed the implications of the Federal Reserve’s latest policy decisions as it signals its willingness to accept a recession ahead if it means an end to surging inflation.

The Fed on Wednesday delivered another large 75 basis point interest rate hike and indicated it intends to stay aggressive, bumping up interest rates to 4.6% in 2023 and 4.4% by the end of 2022. Global central banks took a note from the Fed’s playbook, implementing their own substantial hikes in the wake of the decision.

Even with this week’s stark move higher in yields, many analysts believe yields could climb higher.

“While we are likely much closer to the end of the increase in global rates then we are the beginning, it’s still going to take a peak in global inflation and a drop in global economic activity for yields to stop this rise and begin to decline,” wrote Tom Essaye of the Sevens Report in a note to clients Friday.

Komal Sri-Kumar, president of Sri-Kumar Global Strategies, told CNBC’s “Squawk Box” on Friday that he sees the 10-year hitting at least 4% and added that the steepening inverted yield curve suggests a recession ahead. Many analysts interpret short-term rates being significantly higher than long-term rates as a signal of a downturn.

“The bond market anticipates a recession in the first half of 2023 and is already looking forward to the eventual recovery,” he said. “That’s what happened in 2006, 2007 — we are following the same pattern.”

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