Treasuries most sensitive to Fed set for biggest loss since 2019

US debt that’s the most responsive to changes in Federal Reserve policy is leading the fallout from this week’s shock inflation print. Five-year Treasury yields jumped 20 basis points this week to 1.26 per cent as of 4.36 pm (IST), set for the biggest surge in two years, as traders consider the potential for the Fed to raise interest rates earlier than markets currently anticipate.

 

Yields on similar-maturity debt by Italy led euro-area moves, climbing as much as five basis points before pulling back. Global bonds have had a wild month, with yields gyrating as investors reassessed their expectations for the path of rate hikes as inflation quickens.

 

The Treasury market has seen unusually large price swings as liquidity dried up, by one measure to the worst since peak investor pandemic fears in March 2020. “Investors and Fed policy makers are still unsure as to whether elevated inflation will be transitory or not,” said Kenta Inoue, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.