The yield on the 2-year Treasury broke above 4% for the first time since 2007 on Wednesday, as traders bet the Federal Reserve has much more to do in raising interest rates to fight inflation.
The policy-sensitive 2-year Treasury rose by 4 basis points to 4.006%, a level not seen since October 2007. Meanwhile, the return on the benchmark 10-year Treasury was last at 3.561%, down about 1 basis point, after hitting an 11-year high this week. The significant inversion, with short-term interest rates higher than long-term, points to the risk of a recession, some investors believe.
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Yields and prices move in opposite directions, and 1 basis point equals 0.01%.
The Fed is expected to raise interest rates by 75 basis points, or 0.75 percentage point, as the September meeting draws to a close. But even that may not be enough, Michael Schumacher, chief of macro strategy at Wells Fargo Securities, told CNBC’s “Fast Money,” explaining that while he expects a 75 basis point increase, he would argue for a 150 basis point increase as he believes that rates are still rising.
Treasuries can also be a source of safety for investors, he added.
“Relative safety I would look at the front end of the US Treasury curve. You have the 2-year Treasury bond yielding about 4%. It’s been up a lot,” he said. “If you think about the real yield, which is what a lot of people in the bond market focus on, it’s probably not a bad place to hide.”
Before hearing from the Fed, investors and traders will gain more insight into the housing market as home sales figures for August are expected to be released.