Short-term U.S. Treasury rates continued to rise on Wednesday as investors processed the previous session’s large market activity caused by a high inflation reading. The part of the Yields curve most susceptible to Fed policy, the 2-year Treasury, was trading roughly 2 basis points higher at 11:00 a.m. ET, reaching 3.771%.
The 2-year yield climbed as high as 3.834% throughout the day, marking its highest point since 2007. It jumped by 17 points on Tuesday. The moves inversely to prices, with a basis point equal to 0.01%. During this time, the on the benchmark 10-year Treasury note dropped by 2 basis points to 3.402%. The on the 30-year Treasury bond fell by 3 basis points to 3.478%.
According to Kathy Jones, chief fixed income analyst for the Schwab Center for Financial Research, long-term Yields may find it difficult to rise much above current year-to-date highs while short-term Yields look to be pushed by expectations of a Fed hike. Jones said that they see the dominating trend of Yields curve inversion when I look at long-term Yields, and I’m still not confident we’ll see the 10-year go a significant amount higher.
On Tuesday, August’s consumer price index report revealed a 0.1% month-over-month increase in inflation. Due to a decrease in gas prices—which fell 10.6% from the previous month—markets had anticipated a lower number. Markets are pricing in a further rate increase of 75 basis points from the Fed, but there is some expectation that the subsequent rate increase may be considerably higher.