Short-term U.S. government bond yields are trading around their highest levels in 14 months.
The yield on the two-year Treasury note recently traded around 0.258%, according to Tradeweb. That’s down from 0.260% at Wednesday’s close, the highest since April 2020.
The yield on the two-year note, which tends to swing with expectations for monetary policy, has jumped since Federal Reserve officials last week signaled that they expect to raise benchmark rates sooner than previously anticipated.
For much of the past year, the two-year yield traded within a range around 0.15%, despite some investors’ expectations for a surge in inflation that could prompt the central bank to eventually tighten monetary policy. Now some Fed officials have indicated that rates could rise as early as 2022.
Analysts and investors now expect the two-year yield to stabilize at these levels. Some say that the recent jump in short-term yields may have been spurred by investors’ unwinding bets on a wider gap between short- and long-term yields after the Fed’s meeting.
The Treasury Department sold $60 billion worth of two-year notes earlier this week at a 0.249% yield, above the trailing 12-month average auction yield of 0.156%, but below the 0.305% high during that period.
Jefferies expects the two-year yield to trade in a range between 0.24% to 0.28%, thanks in part to significant investor demand for short-term U.S. government debt.
“There is still a lot of cash floating around in the front-end of the [yield] curve and although we may see 2s back up to the higher end of the range, downside is pretty limited,” wrote the firm’s economists in a recent note.
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June 24, 2021 at 09:27PM
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