Treasury yields pull back from highs

U.S. Treasury yields slipped Thursday, as the Federal Reserve and central banks around the world indicated they would get more aggressive in their bid to curb rising inflation.

The yield on the benchmark 10-year Treasury note traded 8 basis points lower to 3.311%, after notching an 11-year high earlier in the week, while the 30-year Treasury bond slid 3 basis points to 3.375%. The 2-year Treasury rate, which is more sensitive to U.S. monetary policy changes, dropped about 11 basis points to 3.173%. Yields move inversely to prices, and 1 basis point equals 0.01 percentage point.

As stock prices hit their lows, yields came off their highs as some investors scrambled into bonds on fears a recession was ahead. Bond prices move inversely to yields so the run into Treasuries as stocks fell caused rates to decline.

Thursday’s moves came after the Swiss National Bank overnight raised rates for the first time in 15 years. The Bank of England was set on Thursday to raise rates for the fifth straight time.

On Wednesday, the Fed raised rates by 75 basis points, marking is biggest rate hike since 1994.

The central bank’s aggressive move to rein in inflation came after the U.S. consumer price index rose by an annual 8.6% in May, its largest year-on-year increase since 1981.

Members of the Federal Open Market Committee reiterated the Fed’s commitment to stabilizing inflation and indicated that a stronger path of rate increases lies ahead. Officials also cut their 2022 economic growth outlook to just 1.7% from 2.8%.

Analysts were divided as to the market implications and the scale of the likely recession coming down the pike.

“Recognizing that hiking more now means less later, the Fed demonstrated its resolve to tame inflation without undermining its employment mandate,” said Ronald Temple, co-head of multi-asset and head of U.S. equity at Lazard Asset Management.

“While some spectators argued for an even steeper hike, the Fed understood that the combination of rate hikes and QT already takes the US into uncharted territory with significant risks to growth. The hike today sent exactly the right message to markets.”