US and Eurozone Bond Yields Climb as Two-Year Treasury Steadies

what happened

Update reports that US Treasury yields mostly rose in European trading on Friday, as inflation pressures kept expectations for more Federal Reserve rate increases firm. Eurozone government bond yields also climbed. The two-year Treasury yield, hit hardest by Thursday's selloff, eased slightly to 4.849%, while the 10-year yield rose 2.4 basis points to 5.126%, according to Tradeweb.

New York Fed President John Williams said the central bank still has work to do on monetary policy and that inflation remains too high. Derek Halpenny of MUFG Bank said those comments partly explained the stabilization in the two-year yield. The 10-year German Bund yield increased 5.1 basis points to 3.375%.

Most analysts expect the Fed to raise rates in December, but they remain divided on the size, pace and frequency of further moves. According to LSEG data, money markets price an 89% chance of a 25-basis-point increase in December and an 11% chance of a 50-basis-point hike.

why it matters

Higher yields mean lower bond prices and more expensive borrowing. A producer price index reading for October is expected to accelerate to 6.6% on year from 6.3% in September, according to a Wall Street Journal analyst poll, which adds to caution in the bond market.

market impact

Government bonds in the US and Germany: expectations of more Fed hikes press bond prices lower

• ▼US Treasuries pressure down — yields rose on expectations of further Fed tightening
• ▼German Bunds pressure down — yields climbed alongside other eurozone government bonds

tags

instruments