Fears of inflation and forecasts of Fed hikes have sent bonds plunging, lifting yields on Treasuries to multi-year highs.
The yield on the 30-year Treasury touched 5.197 percent, the highest since 2007, before retreating slightly to 5.18 percent. Bond yields move up as prices fall.
The yield on 10-year Treasuries rose as high as 4.687 percent and then slipped to 4.667 percent. Two-year yields rose to 4.12 percent.
The fed funds swaps market, which allows investors to bet on Fed policy rate moves, now shows a better-than-even chance that the Fed will hike by the end of this year. The market gives no chance of a rate cut this year. Even as far out as the summer of 2027, the market currently has no cuts priced in and as many as two hikes.
The bond rout is rooted in fears that the Iran war-fueled inflation may be more persistent than previously thought. One reason for that is the lack of progress in talks to end the conflict.
Oil prices fell on Tuesday but remain near recent highs. Brent crude, the global benchmark, was trading above $111 a barrel on Tuesday. The major stock indexes were down by less than one percent.
Long-term bond yields tend to reflect the expected path of the Federal Reserve’s policy rate over the coming years. Those expectations are shaped by forecasts of inflation, employment, economic growth, and how the Fed will react to those developments. Higher expected inflation tends to push up yields as investors forecast fewer rate cuts or more rate hikes from the Fed. Expectations of a slumping economy, however, tend to push down yields because investors expect the Fed to cut rates to support the economy.
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