Treasury Yields Rise as Markets Weigh Further Fed Hikes

The two-year Treasury yield edged down to 4.849%, according to Tradeweb. The 10-year yield rose 2.4 basis points to 5.126%. Derek Halpenny, head of research at MUFG Bank, said the two-year yield’s stabilization partly reflected comments from New York Fed President John Williams, who said the Fed still had work to do to bring monetary policy to the right place and that inflation remained too high.

German 10-year Bund yields rose 5.1 basis points to 3.375%, and yields on other 10-year eurozone government bonds also increased. Analysts broadly expect a Fed hike in December, but differ on the pace and size of moves that may follow.

U.S. growth data have surprised on the upside, suggesting current policy may not be restrictive enough, said Jussi Hiljanen, SEB’s chief U.S. and eurozone rates strategist. Although Fed Governor Christopher Waller has raised the possibility of a 50-basis-point increase, SEB expects the majority of policymakers to favor gradual steps: a 25-basis-point hike in December and another of similar size in March, Hiljanen said.

Cleveland Fed President Beth Hammack said Thursday she preferred smaller, steadier policy changes to help businesses and households plan. San Francisco Fed President Mary Daly said she expected further tightening because inflationary pressure remained consistent and was not limited to sectors directly affected by tariffs or oil.

LSEG data put the probability of a 25-basis-point December hike at 89%, against 11% for a 50-basis-point move. Jefferies also expects a quarter-point increase in December. Beyond that, the outlook could depend on the war and oil prices, global economist Mohit Kumar said. If the current “no war no peace” situation persists for a couple of months, a January hike could become more likely, he said.

Friday’s calendar includes the October producer price index, due at 1330 GMT. A Wall Street Journal poll of analysts forecast annual growth accelerating to 6.6% from 6.3% in September. S&P Global Ratings is also scheduled to review Italy’s BBB+ credit rating, which has a positive outlook.