The policy-sensitive 2-year Treasury yield advanced for an eighth straight trading session on Monday as investors and traders awaited the outcome of debt-ceiling negotiations later in the day.
Meanwhile, the rate on the one-month Treasury bill soared above 5.6% as investors aggressively sold off the short-dated maturity.
What happened
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The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.564% rose 3.1 basis points to 4.318% from 4.287% on Friday. Monday’s level is the highest since March 10, based on 3 p.m. figures from Dow Jones Market Data. The yield is up 41.9 basis points over the last eight trading days, matching its longest streak of advances seen last June. -
The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.756% rose 2.7 basis points to 3.717% from 3.690% as of Friday afternoon. The yield is up 32.1 basis points over the last seven trading sessions, matching its streak of advances seen in April 2022. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.906% advanced 2.3 basis points to 3.969% from 3.946% late Friday. The yield is up 22.2 basis points over the last seven trading sessions, matching its longest such streak since February.
What drove markets
The rate on one-month Treasury bills
TMUBMUSD01M,
Investors and traders sold off the one-month T-bill on concern over whether the government would be able to pay its obligations after June 1. The primary focus for financial markets continues to be U.S. debt-ceiling negotiations, which were set to resume after the close of markets on Monday.
Meanwhile, St. Louis Fed President James Bullard said on Monday that he would like two more quarter-of-a-percentage-point interest-rate hikes this year to put downward pressure on inflation. His colleague, Minneapolis Fed President Neel Kashkari, who is a 2023 voting member of the rate-setting Federal Open Market Committee, said in a CNBC interview Monday morning that “right now, it’s a close call between raising in June or skipping.”
Markets are pricing in an 80.1% probability that the Fed will leave interest rates unchanged between a range of 5%-5.25% on June 14, according to the CME FedWatch Tool. Fed funds futures traders also see a 19.9% chance of a quarter-point hike next month, according to 30-day Fed Funds futures.
The minutes of the Fed’s May 2-3 meeting will be released on Wednesday.
What analysts are saying
“Casting a shadow over monetary policy and the markets is the need to raise the debt limit to avoid a default on Treasurys at some point in June with President Biden set to meet today with House Speaker McCarthy,” said Scott Buchta, head of fixed-income strategy for Brean Capital, in a note.
“All of this has the making of a market reacting to data, Fedspeak, and tape bombs on the debt ceiling,” with “regional bank stress simmering in the background,” Buchta wrote.
