Hard-line statements from Federal Reserve officials led to a jump in Treasury yields

Several Federal Reserve officials indicated on Tuesday that the US central bank was committed to combating higher rates, which led to a jump in short-term Treasury yields as investors priced in further interest rate hikes.

The two-year yield, which moves with interest rate expectations, jumped 0.19 percentage point to 3.06 percent, its biggest daily move since mid-June. The three-year yield rose 0.22 percentage points, also its biggest move since mid-June, to break 3 percent.

Mary Daly, president of the Federal Reserve Bank of San Francisco, said: in an interview On LinkedIn, the central bank was ‘nowhere near’ in its struggle for appeasement inflationwhich continues to rise at 40-year highs.

Her statements come after Fed meeting Last week, President Jay Powell suggested that it might be appropriate to slow the pace of interest rate increases, sending prices higher in the markets.

In a separate interview on Tuesday, Chicago Fed President Charles Evans said he believed a 0.5 percentage point increase at the next meeting in September would be appropriate. However, he left the door open for a larger 0.75 percentage point rise, which he said “could be good, too.”

Also on Tuesday, Cleveland Federal Reserve Chairman Loretta Mester in an interview With the Washington Post, it said it expects economic growth below the general trend for this year, which it added is needed to rein in inflation. She didn’t think the US was in a recession due to the continued strength of the labor market. Meester is known to be among the more hawkish members of the Federal Open Market Committee.

Subhadra Rajapa, head of US interest rate strategy at Societe Generale, said Daly’s comments “sparked” a sell-off in the US Treasury market, with yields moving inversely to prices. “It’s hard to tell… if the market is overreacting,” Rajappa added.

Tom Simmons, financial market economist at Jefferies, said Evans “tends to be very pessimistic, so this hawkish note is important.”

After the July meeting of the Federal Open Market Committee, investors began pricing in a series of smaller interest rate increases later this year amid signs that the Fed’s sharp monetary tightening is beginning to cool US economic growth.

But comments from Daly, Evans and Mister moved futures markets, with expectations in place for the Federal Reserve’s benchmark interest rate in December from 3.27 percent on Monday to 3.39 percent on Tuesday.

The Federal Reserve’s comments come after the Commerce Department reported last week that US economy Shrinking for the second consecutive quarter, meeting one of the common stagnant criteria. It shrank 0.9 percent year-on-year in the second quarter, after a 1.6 percent contraction in the first three months of 2022.

Investors also warned that liquidity in the Treasury market – the ease with which traders can buy and sell – is poor, with many market participants taking a holiday this month. Liquidity deterioration can lead to large fluctuations in the price of securities.

Elsewhere, US stocks fell on Tuesday similar to Nancy Pelosi Arrival in Taiwan It fueled tensions between the United States and China.

The S&P 500 stock index on Wall Street ended the day 0.7 percent lower, while the heavy Nasdaq Composite was down 0.2 percent. The European Stoxx 600 Index fell 0.3 percent, Japan’s Nikkei Index fell 1.4 percent, Hong Kong’s Hang Seng Index fell 2.4 percent, and the CSI 300 Index of Chinese companies listed on the mainland fell 1.9 percent.

China said it would increase its military activity around Taiwan after the Speaker of the House of Representatives became the highest-ranking US official to visit the territory in decades.

Several Chinese fighter planes flew near the midline separating the Taiwan Strait, while Russia accused the United States of “provoking” Beijing.

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