With trust placed on the Federal Reserve Open Market Committee (FOMC), we can expect the more targeted interest rate hikes to help allay fears that inflation will be detrimental to growth.
US obnd yields are on the rise following the hot inflation data released on Tuesday, and the expectations of a hike in interest rate from the Federal Reserve. Today, both the short and long-term yields are on the bounce, an indication that the odds are bound to favor these yields more especially if the Feds interest rate tops the 100 basis points as is now being expected by some analysts.
Considering the fact that US bond yields move inversely proportional to prices, a basis point corresponds to 0.01%. Today, the yields on the 2-year Treasury surged by 4 basis points to 3.823%. The 2-year Treasury comes off as one of the most impacted yields by any decision from the Federal Reserve.
The current level of the yield is the highest point attained since 2007. The consistent growth in the 2-year Treasury serves as a marker for other yields which are also currently on the rise. The yields on the 10-year Treasury Note climbed by 3 basis points to 3.445% while the yields on the 30-year Treasury bond inked a 3 basis points growth to 3.499%.
The inflation data released by the United States Bureau of Labor Statistics on Tuesday showed inflation was pegged at 8.3% year on year. While the figure came with a meager decline from the 8.5% recorded in the previous month, the fact that it was far off the projected target being expected by the central banks makes exerting more rate hikes imminent.
While the Consumer Price Index (CPI) data were “terrible” according to Brad McMillan, chief investment officer at Commonwealth Financial Network, he believes the released Producer Price Index (PPI) data released on Wednesday shows there remains light at the end of the tunnel.
“The headline number held steady at 0.2 percent, but the annual number dropped by much more, from 9.8 percent to 8.7 percent (a much bigger drop than the CPI),” he told CNBC.
Projected Interest Rate Hikes to Allay Inflation Concerns
With trust placed on the Federal Reserve Open Market Committee (FOMC), we can expect the more targeted interest rate hikes to help allay fears that inflation will be detrimental to growth.
While industry experts believe the current outlook points to fears of inflation growing at a steady pace, there are also key data that point otherwise.
“When you look at the details, things are not so bad,” McMillan added. “The CPI and the market reaction suggest inflation will keep rising at an accelerating rate, but not all of the data agree. Even using much of the data as it stands, it still looks likely inflation will end the year lower than it is now.”
Ahead of the Fed’s meeting next week, other key data like jobless claims, manufacturing, and industrial production, and Energy Information Agency, gas stocks are set to be published today. Insights from these data will also impact what percentage of the interest rates will be hiked.
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