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Bond Report: 2-year Treasury yield has biggest five-week advance in almost 15 years as yields rise across the board

Treasury yields carved out another round of three-year highs on Friday, with the 2-year rate posting its biggest five-week gain in more than a decade, as investors continued to assess the Federal Reserve’s likely policy path.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.711%

rose 5.9 basis points to 2.713% from 2.654% at 3 p.m. Eastern on Thursday. That’s the highest level since March 5, 2019, based on 3 p.m. levels, according to Dow Jones Market Data. The rate is up 33.9 basis points for the week and is up four of the past five weeks.

The 2-year Treasury note yield
TMUBMUSD02Y,
2.523%

advanced 5.6 basis points to 2.518% from 2.462% Thursday afternoon. It rose 8.8 basis points this week and has gained 102.8 basis points over the last five weeks — the largest five-week yield gain since the period that ended May 22, 1987.

The 30-year Treasury bond yield
TMUBMUSD30Y,
2.730%

rose 5.7 basis points to 2.745% from 2.688% late Thursday. It rose 32.3 basis points for the week, the largest one-week gain since March 13, 2020.

What’s driving the market?

Investors were still digesting the Federal Reserve’s plans to begin unwinding its balance sheet, with minutes of the March policy meeting on Wednesday offering details. It showed policy makers want to reduce the balance sheet by up to $95 billion a month after a three-month phase-in. The process could potentially begin in May, but policymakers have yet to make a final decision, the minutes said.

See: Worries grow that 8% inflation, more Fed comments on balance-sheet runoff could ‘scare the bond market witless again’

Yields at the long end of the Treasury curve have risen this week by more than short-end rates — undoing a brief inversion that saw the 2-year yield trade above the 10-year for a few days. Persistent inversions of that portion of the curve are seen as a significant recession warning signal.

Read: U.S. recession indicator is `not flashing code red’ yet, says pioneering yield-curve researcher

Investors continue to monitor developments in the Russia-Ukraine war. A Russian missile attack on a train station in eastern Ukraine killed dozens of people and injured more than 100, Ukrainian officials said.

What are analysts saying?

“The recent inversion at the longer end of the yield curve will not deter the Fed from continuing along a more aggressive pathway to higher rates to rein in `too high’ inflation,” said Stifel Chief Economist Lindsey Piegza and Economic Analyst Lauren Henderson. “In fact, monetary policy officials have been clear they are willing to tighten as much as needed, even at the risk of deliberately choking off domestic growth,” they said in a note.

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