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Treasury Yields Surge by Most in 13 Years as Fed Path Repriced

  • Two-year rates rise to highest since 2008 on CPI increase
  • Swaps price in half-point rate hikes in June, July, September
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US Faces a Stagflationary Environment, MKM's Darda Warns
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US Treasuries tumbled, sending 2-year yields surging by the most since 2009, after an unexpected jump in inflation increased speculation the Federal Reserve will need to raise interest rates more aggressively over the next few months. 

The surge in consumer prices in May to a fresh four-decade high surprised investors who were looking for signs that inflation had peaked and drove traders to price in expectations for half percentage-point rate hikes at the Fed’s June, July and September meetings. Barclays Plc became the first Wall Street bank to predict that the Fed will raise rates by three-quarters of a percentage point at its meeting next week, while swaps have started placing even odds on such a move in July.