year yields hit 12-year highs as global tightening fears increase

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NEW YORK — Benchmark 10-year yields

jumped to 12-year highs on Friday and two-year yields were the

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highest since 2007 as investors fretted that central banks

globally will keep tightening monetary policy to tackle soaring

inflation.

“We are pricing into the reality that we’re entering the

next phase of global tightening,” said Ian Lyngen, head of U.S.

rates strategy at BMO Capital Markets in New York.

Treasury yields rose in tandem with British government debt

yields on Friday, which jumped after Britain’s new finance

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minister Kwasi Kwarteng unleashed historic tax cuts and huge

increases in borrowing.

That came a day after the Bank of England raised its key

interest rate by 50 basis points to 2.25% and said it would sell

around 8.7 billion pounds ($9.8 billion) of government bonds in

the final quarter of 2022, becoming the first major central bank

to begin active sales.

The Federal Reserve on Wednesday hiked rates by 75 basis

points and Fed Chairman Jerome Powell vowed that he and his

fellow policymakers would “keep at” their battle to beat down

inflation.

As rates rise, concerns about how they will impact growth

and risky assets are also increasing.

Yields on 10-year Treasury Inflation-Protected Securities

(TIPS), which account for expected inflation and are

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known as real yields, reached 1.426% on Friday, the highest

since February 2011.

“That’s going to have meaningful ramifications for U.S. risk

assets, we just haven’t seen that yet,” said Lyngen. “I suspect

that we’re dealing with a recalibration of forward expectations

that will ultimately end with a flatter curve, or a deeper

inversion in the U.S. and risk assets under pressure.”

The inversion in the yield curve between two-year and

10-year notes reached minus 58 basis points on

Thursday, the most inverted in at least two decades, and was

last at minus 43 basis points, indicating fears about an

impending recession.

Two-year yields reached 4.270%, the highest since

October 2007. Five-year yields hit 4.084%, the

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highest since November 2007 and benchmark 10-year yields

jumped to 3.829%, the highest since April 2010.

September 23 Friday 9:07AM New York / 1307 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 3.1825 3.2517 0.020

Six-month bills 3.7825 3.9081 -0.001

Two-year note 98-91/256 4.1451 0.018

Three-year note 98-50/256 4.1519 0.010

Five-year note 96-96/256 3.9411 0.014

Seven-year note 95-136/256 3.8661 0.011

10-year note 92-20/256 3.7145 0.007

20-year bond 92-184/256 3.9047 -0.009

30-year bond 88-140/256 3.6311 -0.007

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 40.00 -0.25

spread

U.S. 3-year dollar swap 15.25 0.00

spread

U.S. 5-year dollar swap 7.50 -0.25

spread

U.S. 10-year dollar swap 4.50 -0.25

spread

U.S. 30-year dollar swap -34.25 -2.00

spread

(Reporting by Karen Brettell; editing by Jonathan Oatis)