Government bond Yields have surged to their highest levels in nearly a year, reflecting investor expectation that Russia’s invasion of Ukraine will not halt the momentum toward higher interest rates. U.S. Treasury notes Yields 2.139%, a higher closing price than Friday’s close of 2.004% and the highest close since June 2019.
Yields, which rise as bond prices fall, had risen dramatically in the first six weeks of the year as investors raised their expectations for Federal Reserve interest rate hikes. As a result of Russia’s invasion, they began to fall, with the 10-year Yields falling to as low as 1.722 percent. However, Yields have rebounded over the past week, as investors fear that Russian isolation will boost inflation by driving up commodity prices.
Investors will learn more about the Fed’s thinking in a few days. On Wednesday, the central bank is largely expected to boost short-term rates by a quarter-point. It will, however, reveal its most recent economic prediction as well as a “dot plot” showing where individual officials expect rates to go in the coming years.
According to interest rate derivatives, traders believe there is a roughly 70% likelihood that the Fed will raise rates to at least 1.75 percent this year. It’s up from 31% a week ago, and it’s back to around the same level as a month ago. Investors expect the Fed to reduce its rate hikes next year, leaving short-term rates between 2% and 2.5 percent. That’s about where they were during the previous economic growth.