Long-term US Treasury yields fell on Friday as investors digested the Federal Reserve’s increased inflation expectations and earlier-than-expected rate hike projections.
At 4:00 p.m. ET, the yield on the benchmark 10-year Treasury note had fallen 7 basis points to 1.441 percent. The 30-year Treasury bond yield fell 8.6 basis points to 2.015 percent. Yields move in the opposite direction of prices. One basis point is equal to 0.01 percent.
The short end of the yield curve was mostly higher, continuing the upward trend seen following the Fed’s actions on Wednesday. The yield on the 2-year Treasury note increased by 4.3 basis points to 0.256 percent.
Even after the Fed raised its inflation forecast on Wednesday, long-term yields fell. The Fed also hinted that an interest rate hike could occur as early as 2023, after previously stating that no increases would occur until at least 2024.
Short-term yields rose following the Fed’s update, while long-term yields fell, resulting in a so-called flattening of the Treasury curve. This reflects expectations that the Fed will eventually raise short-term interest rates, even as long-term economic growth slows.
Yields rose slightly on Friday after St. Louis Fed President James Bullard told CNBC that he expects the Fed to raise interest rates for the first time in 2022.
“We’re anticipating a good year and a successful reopening.” But this is a bigger year than we expected, with higher inflation,” a central bank official said on “Squawk Box.” “I think it’s natural that we’ve shifted a little more hawkish here in order to keep inflationary pressures at bay.”
Bullard will not be a voting member of the Federal Open Market Committee in 2021, but he will serve as an alternate member.
Kleinwort Hambros chief investment officer Fahad Kamal said in a note sent to CNBC on Thursday that based on the Fed’s policy update and Chairman Jerome Powell’s comments to the press on Wednesday, central banks were still expected to “remain expansionary for the time being.”
Inflation, he believes, will be transitory in the short term and will fall in 2022 as an ageing population, supply-chain efficiency, and technology-driven productivity gains “exert lasting disinflationary pressures.”