Here are your top FOX Business Flash headlines for March 14th.
U.S. government bond yields rose to their highest level since 2019, reflecting a growing bet from investors that a Russian invasion of Ukraine will not slow the momentum to hike interest rates.
The benchmark 10-year US Treasury yielded 2.139%, up from 2.004% on Friday and the highest close since June 2019.
Yields, which rise when bond prices fall, rose sharply in the first six weeks of the year as investors stepped up their expectations of higher interest rates from the Federal Reserve. Then they fell — yields on 10-year bonds dropped to 1.722% — as the Russian invasion funneled cash into safer assets.
INVESTORS STARTED BUYING UKRAINE AND RUSSIA BONDS
But yields rebounded last week, and investors are becoming increasingly nervous that Russia’s isolation will exacerbate inflation by pushing up commodity prices.
It’s hard to say that recent events “are not inflationary given commodity prices,” said Leah Traub, portfolio manager at Lord Abbett.
The Federal Reserve Building in downtown Washington DC, USA at night. HDR image. (iStock/iStock)
While some believe that higher commodity prices could slow economic growth and therefore force the Fed to be cautious about raising interest rates, “we believe that for the US, the impact of inflation will be greater than any negative effects of growth,” she said. she. .
Highlighting the complexity of the current situation, Monday’s rise in yields came as hopes for a negotiated settlement between Russia and Ukraine helped lower oil prices. It was a sign that, for many investors, lower commodity prices would continue to make it easier for the Fed to raise rates.
Investors will get more insight into the Fed’s mindset in a few days. The central bank is expected to raise short-term rates by a quarter of a percentage point on Wednesday. But he will also release his latest economic forecast and a so-called scatter chart showing how individual officials expect rates to change over the next few years.
CLICK HERE CLICK FOX BUSINESS ON THE ROAD
As of Monday, interest rate derivatives showed that traders believe there is an almost 70% chance the Fed will hike rates to at least 1.75% this year, according to data from the CME Group – up from 31% a week ago and a return to about the same position as a month ago. The Fed’s current target for the base rate is between 0% and 0.25%.
Investors, however, expect the Fed to sharply slow its rate hike next year, keeping short-term rates between 2% and 2.5%. This is about the same peak they reached during the previous economic boom.
Rising bond yields are likely to disappoint many investors, pushing up the cost of borrowing in the economy and leaving investors with few places to hide if they are nervous about owning riskier assets like stocks.
U.S. Department of the Treasury sign on the front of a building in Washington, DC (iStock / iStock)
This year has been a particularly difficult one as both stock and bond prices have fallen, making it difficult for savers to generate positive returns regardless of their investment strategy.
To investors’ concern, yields on Treasury inflation-protected securities, or TIPS, rose even more than regular US Treasuries on Monday, often hurting stock prices.
The 10-year Treasury inflation-protected yield was minus 0.821% on Monday afternoon, compared to minus 0.978% on Friday.
Investors pay close attention to the TIPS yield because it is a proxy for real or inflation-adjusted bond yields, possibly making it a better benchmark for borrowing costs than nominal yields.
CLICK HERE TO READ MORE ABOUT FOX BUSINESS
As at the start of the year, Monday’s rise in yields coincided with a simultaneous drop in stocks valued largely for their potential future earnings, such as those in the tech sector. The ability to earn higher risk-free yields on bonds usually makes such companies less attractive to investors.