US government bond yields fell on Thursday morning, with interest rates for 5 and 30 years remaining reversed as investors adopted the latest minutes from the Federal Reserve meeting.
The yield on the reference 10-year government securities fell 4 basis points to 2.5659% at 4:15 a.m. ET. Yields on 30-year treasury bonds fell by 2 basis points to 2.6046%, while the 5-year rate fell by 6 basis points to 2.6381%. Yields are moving back in price and 1 basis point is equal to 0.01%.
Minutes of the Fed’s meeting, released Wednesday afternoon, show that US Federal Reserve officials plan to shrink their balance sheets by $ 95 billion a month. Fed officials also said there could be one or more interest rate increases of 50 basis points ahead.
This Fed hawk tone led to a 3-year peak in 10-year bond yields. Investors are worried that the Fed’s more aggressive tightening in an attempt to fight rising inflation could actually hurt economic growth and lead to a recession.
Inversions in government bond yields, with investors selling short-term government bonds in favor of long-term debt, reflect these fears of a recession.
Simon Harvey, head of currency analysis at Monex Europe, told CNBC’s Squawk Box Europe on Thursday that the amount the Fed was withdrawing from the public finance market was not necessarily “too aggressive.”
He expected two consecutive interest rates of 50 basis points to be announced at the next Fed meetings.
After these two interest rate hikes, Harvey said the Fed would try to consider whether that was enough to bolster inflation expectations to see if it could continue to rise by 25 basis points after that.
Harvey suggested that if that wasn’t enough to control inflation, there could be a “revaluation to a higher final interest rate,” which is the end point for raising the Fed’s interest rates.
On Thursday, the Ministry of Labor is due to announce the number of initial unemployment applications filed during the week ending April 2 at 8:30 a.m. ET. Economists expect 200,000 new unemployment claims last week.
The auctions are expected to be held for 4-week vouchers worth $ 35 billion and 8-week vouchers for $ 30 billion.