US Treasury yields soar as 10-year posts biggest annual gain in decades

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By Chuck Mikolajczak

NEW YORK, Dec. 30 (Reuters) – Benchmark yields on US 10-year Treasuries rose Friday, ending the trading year with the largest annual gain in decades as the Federal Reserve embarked on a path of policy tightening to tackle inflation.

The 10-year is up about 238 basis points this year, the biggest annual climb since at least 1953, according to data from Refinitiv, as the U.S. central bank raised interest rates at its fastest rate since the 1980s to try to ease stubbornly high inflation after years of loose monetary policy.

“You still have a tight labor force, so you still have inflationary pressures, which require interest rates to stay at higher levels than they used to be from central banks,” said Thomas Martin, senior portfolio manager at Globalt Investments in Atlanta, Georgia.

“So we’re trying to work towards that more normal thing, but it’s going to take a while.”

The yield on 10-year Treasury bills increased 4.4 basis points to 3.879%.

After hitting a nearly three-month low on December 7 as hopes grew that the Fed would signal an end to the cycle of rate hikes, 10-year yields have risen steadily following policy announcements from the US Federal Reserve, the Bank of England and the European Central Bank earlier this month, reaching a seven-week high of 3.905% on Friday.

Fed Funds rates will rise above 5% next year, according to forecasts from the US Federal Reserve, while Fed Chairman Jay Powell and other Fed officials have said it may be necessary to keep rates at higher levels for longer to recover. address inflation.

The yield on the 30-year Treasury bond rose 5.2 basis points to 3.975%.

However, analysts have warned that it’s hard to put too much weight on market direction this week given the limited trading activity around the holiday season.

A closely watched portion of the US Treasury yield curve that measures the difference between two-year and ten-year Treasury yields, viewed as an indicator of economic expectations, stood at a negative 55.3 basis points. An inversion is seen by many as a signal of recession.

The yield on two-year US Treasury bills, which generally move in line with interest rate expectations, rose 6.1 basis points to 4.428%. The two-year is up about 370 basis points this year, the largest annual increase since regular issuance began in 1972.

The break-even rate on five-year US Treasury Inflation-Protected Securities (TIPS) last stood at 2.382%, after closing at 2.375% on Thursday.

The bond market closed early on Friday at 2pm EST and will be closed on Monday for New Year’s Day.

The 10-year TIPS break-even rate was 2.302% last year, indicating that the market expects inflation to average 2.3% per year over the next ten years. (Reporting by Chuck Mikolajczak; editing by Barbara Lewis and Chizu Nomiyama)

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