Treasury Yields Rise Sharply as Investors Digest Fed Rate Increase

On Mar 16, 2022

U.S. government bonds yields rose sharply Wednesday after the Federal Reserve said it would lift short-term interest rates and signaled they could reach nearly 2% by the end of the year.

In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 2.239%, according to Tradeweb, compared with 2.160% Tuesday. The two-year Treasury yield—which is especially sensitive to changes in monetary policy—was recently 1.989%, up from 1.855% Tuesday.

Yields, which rise when bond prices fall, had drifted higher earlier in the session but added to those gains immediately after the Fed released its latest policy statement, which stated that the central bank would raise its benchmark federal-funds rate by a quarter percentage point to a range between 0.25% and 0.5% from near zero. A forecast for interest rates showed officials think rates could rise to roughly 1.9% by the end of 2022 and 2.8% by the end of next year.

The Federal Reserve’s main tool for managing the economy is to change the federal-funds rate, which can affect not only borrowing costs for consumers but also shape broader decisions by companies like how many people to hire. WSJ explains how the Fed manipulates this one rate to guide the entire economy. Illustration: Jacob Reynolds

Heading into Wednesday, yields had climbed substantially in recent sessions to their highest levels since 2019 as investors prepare for a new regime of tighter monetary policies.

This year has been a tough one for bond investors. When inflation started to accelerate last year, investors for months thought that it could subside on its own, allowing the Fed to keep short-term interest rates near zero. Those views, though, changed quickly this year due largely to a shift in tone from Fed officials, who began expressing more concern about inflation and an eagerness to start raising rates.

This year’s one significant bond rally came at the end of February when Russia first invaded Ukraine, casting uncertainty over the economic outlook.

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More recently, though, investors have grown more skeptical that the invasion could keep a lid on interest rates. Some have argued that higher commodity prices spurred by the invasion might only further stoke inflation, putting even more pressure…