2-year yield hits highest level since 2008 after Fed official says he sees more inflation ahead

  • The two-year Treasury yield traded at 2.394 percent, its highest level since September 2008, when it hit 2.542 percent.
  • San Francisco Fed President John Williams said Tuesday he expects U.S. inflation to rise to the U.S. central bank's 2 percent goal this year and stay at or above that goal for "another couple of years."
John Williams, Federal Reserve Bank of New York
Kevork Djansezian | Bloomberg | Getty Images
John Williams, Federal Reserve Bank of New York

The two-year Treasury note yield rose to its highest level since 2008 on Tuesday after a top Federal Reserve official said he expects U.S. inflation to rise.

As of 1:59 p.m. ET, the two-year yield traded at 2.394 percent and hit a high of 2.402 percent. On Sept. 8, 2008, the two-year hit a high of 2.542 percent.

The yield reached its near-decade high after San Francisco Fed President John Williams said Tuesday he expects U.S. inflation to rise to the U.S. central bank's 2 percent goal this year and stay at or above that goal for "another couple of years."

To keep the economy from overheating, he said, the Fed needs to keep raising interest rates.

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"I think it's just further confirmation that the Fed's narrative for hiking remains in place," said Mark Cabana, head of U.S. short rate strategy at Bank of America Merrill Lynch. He also said Williams "seems to be comfortable with the ongoing narrative and that probably means the Fed will continue hiking."

Williams is set to replace William Dudley as the next New York Fed president.

Charles Evans, president of the Chicago Fed, said later on Tuesday he backs "patiently" raising rates while inflation remains low. "I think we have the opportunity to more patiently read — and react to — the incoming data," Evans said at a speech in Chicago.

The Fed currently expects to raise rates three times this year, according to the central bank's latest projections.

On the economic data front, housing starts rebounded in March, totaling 1.319 million versus a Reuters estimate of 1.262 million.

Elsewhere, President Donald Trump will be hosting a two-day official working visit for Japanese Prime Minister Shinzo Abe in Florida, where the two leaders are expected to talk about peace and stability in the Indo-Pacific region, trade and investment ties.

— Reuters contributed to this report.