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US government debt sell-off worsens as banks predict swift Fed rate rises

The U.S. government debt was sold on Friday when hawkish remarks from Federal Reserve officials this week caused major Wall Street banks to predict a faster rate of rate hikes.

The yield on the 10-year U.S. Treasury bill rose 0.14 percentage points to 2.5 percent on Friday, the highest level since May 2019, when the bond fell in price. Goes through the worst month since the election of Donald Trump in 2016.

New York Fed Chairman John Williams said Friday that if a justifiable 0.5 percentage point rise in interest rates was justified to fight fierce inflation, the central bank should take that step. His remarks echoed the recent remarks of Jay Powell, the Fed chairman, adding to the feeling that the central bank would need to step up monetary policy tightening.

Goldman Sachs analysts said on Friday that they now expect the 10-year yield to reach 2.7% by the end of 2022. Citi analysts said they expect the US Federal Reserve to raise funding costs by half a percent on each of its funds. Policy meetings from May to September.

“There’s a narrative around the Fed becoming more budding, even punitive,” said Tancardi Cordero, CEO of Kuros Associates. “It makes sentiment unstable and volatile.”

The number of interest rate increases of a quarter of a point until December that are now priced into future markets in which investors invest or defend themselves against moves in credit costs rose to 8.2 on Friday from 7.7 the previous day.

“The volume of futures contracts is growing significantly…

Thomas also said part of the move could be attributed to investors rebalancing the portfolios towards the end of next quarter as well as towards the weekend, with the chance that a dramatic change in Ukraine’s conflict over the weekend could catch them offside.

Some investors also pointed to a lack of liquidity – or the ability to make large-scale transactions without moving the market – which exacerbated the sharp change in yields.

“Liquidity in the market is extremely weak and volatility is extreme,” said Gennady Goldberg, an exchange rate strategist at TD Securities.

The stock markets were calmer. The S&P 500 was up 0.5% and the European Stokes 600 was up 0.1%, though the technology-dominated Nasdaq Composite was down 0.2% as growth-focused stocks came under pressure. Such companies are considered particularly vulnerable to rising interest rates because higher rates reduce the value that investors attribute to future profits.

Despite the NASDAQ drop on Friday, both S&P recorded the second consecutive week of gains, up 2% and 1.8% respectively.

Another report by Nicholas Magau in New York

US government debt sell-off worsens as banks predict swift Fed rate rises Source link US government debt sell-off worsens as banks predict swift Fed rate rises

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