Treasury yields jump as investors assess 2023 economic outlook

Treasury yields surged on Monday, as investors assess the cumulative probability that the world’s MAJOR central banks will keep raising rates in 2023 despite the economic impact.

Traders focus on assessment of the 2023 monetary-policy outlook of central banks from the US to Japan and Europe. Longer term yields are below their cycle highs reached in October and declines that reflects concerns the Fed’s sharp interest rate hikes to combat inflation could push the US economy into recession.

The Fed raised rates by 50 basis points last week to a range of 4.25% to 4.5% and officials at the central bank have made clear they think borrowing costs may have to stay higher for longer than many in the market think.

The bond market appears to reacts to Fed’s stance. Fed funds futures traders are pricing in a 34% probability that policy makers will raise interest rates by another 50 basis points, to a range of 4.75% and 5%, on February 1. They also see a 29% chance that the central bank takes its main policy rate to between 5% and higher by May, according to 30-day fed Funds futures.

The yield on the 2-year Treasury note TMUBMUSD02Y, 4.245% rose 8 basis points to trade at 4.26% at 3 p.m. Eastern. Yields move in the opposite direction to prices.
The yield on the 10-year Treasury TMUBMUSD10Y, 3.586% was up 10 basis points to 3.581%.
The yield on the 30-year Treasury TMUBMUSD30Y, 3.634% increased 8.9 basis points to 3.622%.