NEW YORK- Treasury yields turned higher on Friday as the market anticipated the Federal Reserve will pause its aggressive hiking of interest rates next week but maintain a hawkish stance as the US central bank remains on guard against high inflation.
Yields briefly dipped after data showed Canada unexpectedly shed jobs in May and its unemployment rate rose for the first time in nine months. The surprise employment report rattled US markets after the central banks of both Australia and Canada earlier this week unexpectedly raised rates.
“Their hikes had put a real curb to inflation and then it’s kind of ironic that they stopped hiking and then inflation stopped going lower and arguably ticked back higher,” said John Luke Tyner, a fixed income portfolio manager at Aptus Capital Advisors in Fairhope, Alabama.
“I do really wonder if we could be in the same environment.”
Brian Daingerfield, macro strategist at NatWest in Stamford, Connecticut, said the market is expecting the Fed’s language to be quite hawkish if policymakers vote in favor of “skipping” a hike at their June 13-14 meeting.
“The Fed is trying to execute a rate pause without the market being convinced that this rate pause is the final move in the cycle,” he said. “That expectation is very, very defensive.”
The two-year US Treasury yield, a barometer for where the market perceives future Fed policy, rose 8.5 basis points to 4.604 percent, while the yield on benchmark 10-year notes rose 3.1 basis points to 3.745 percent, further inverting the Treasury yield curve. – Reuters
