Treasury yields drop after Fed signals rate hiking campaign is near an end
U.S Treasury yields fell Wednesday as investors digested the Federal Reserve's latest interest rate decision and guidance on the central bank's monetary policy path.
The 10-year Treasury yield was down 11 basis points at 3.492%. The 2-year Treasury was last trading at 3.974% after falling 20 basis points. It briefly fell as low as 3.958% following the Fed decision.
Yields and prices move in opposite directions. One basis point is equivalent to 0.01%.
Treasurys
| TICKER | COMPANY | YIELD | CHANGE |
|---|---|---|---|
| US1M | U.S. 1 Month Treasury | 5.364% | -0.006 |
| US3M | U.S. 3 Month Treasury | 5.395% | -0.001 |
| US6M | U.S. 6 Month Treasury | 5.388% | -0.001 |
| US1Y | U.S. 1 Year Treasury | 5.222% | +0.011 |
| US2Y | U.S. 2 Year Treasury | 4.976% | +0.023 |
| US10Y | U.S. 10 Year Treasury | 4.538% | +0.065 |
| US30Y | U.S. 30 Year Treasury | 4.652% | +0.075 |
The central bank enacted a quarter percentage point interest rate increase at the conclusion of its latest policy meeting, expressing caution about the recent banking crisis and indicating that hikes are nearing an end.
"The Committee will closely monitor incoming information and assess the implications for monetary policy," the FOMC's post-meeting statement said. Fed projections call for just one more hike this year.
A 25 basis point increase was widely anticipated. The decision makes it the ninth consecutive interest rate hike and the second quarter-point increase in a row after a series of bigger rate hikes were implemented throughout 2022.
"The financial conditions seem to have tightened, and probably by more than the traditional indexes say," Fed Chair Jerome Powell said in a press conference following the meeting.
He noted that traditional indexes are focused on rates and equities but don't necessarily capture lending conditions. Other measures that do may show more tightening, he added.
"The question is how significant that will be, what will be the extent of it and what will be the duration of it," Powell continued. "Once you know that there's a fair amount of research about how that works its way into the economy. If it looks like it's going to be sustained it could easily have a significant macroeconomic effect."
Just a few weeks ago, many investors believed Fed officials would reaccelerate the pace of rate hikes and announce a 50 basis point increase. Fed Chair Jerome Powell had hinted at rates going higher than previously expected and indicated that the Fed's efforts to cool the economy were still ongoing.
However, the recent turmoil in the banking sector after the failures of Silicon Valley Bank and Signature Bank as well as Credit Suisse's takeover by UBS, shifted investor sentiment. Many now believe that the Fed will favor stability and therefore opt for a smaller rate hike.
"There are several questions at hand: Can the Fed separate the fight against inflation from financial stability — and will the events of late and continued evolution — aid the Fed in its fight against inflation with the further tightening of financial conditions and potential economic fallout?" said Gregory Faranello, head of U.S. rates at AmeriVet Securities. "It all seems to go hand in hand."