Traders Weigh Bigger Fed Rate Hike in March as U.S. Yields Soar

Treasuries slid and yield-curve premiums shrank to the lowest in almost two years amid increased speculation the Federal Reserve will deliver more than a quarter-percentage point rate hike in March.

The yield on two-year notes climbed as much as nine basis points to 1.06% on Tuesday as cash trading restarted after a holiday. Ten-year Treasury yields rose to 1.85% -- the highest since January 2020 -- and the gap between five- and 30-year yields fell below 50 basis points for the first time since March 2020, when the Covid pandemic began.

Focus is sharpening on the Fed’s March meeting, with markets starting to consider pricing more than a 25-basis-point increase. That comes after the likes of JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and billionaire investor Bill Ackman warned the U.S. central bank may need to lift borrowing costs more than investors expect.

“The big theme in rates markets this year, particularly in the U.S., should be higher yields and flatter curves, as U.S. rate hikes get underway,” said Andrew Ticehurst, a rates strategist at Nomura Holdings Inc. “History would suggest that 10-year yields are unlikely to peak before the first rate hike of the cycle.”

Verge of Positive

The moves seeped into other markets with sovereign yields around the globe extending their advance Tuesday.