U.S. Treasury yields jumped on Thursday as Federal Reserve Chairman Jerome Powell signaled that a larger-than-usual rate hike could be on the horizon for next month.
The yield on the benchmark 10-year Treasury note rose 9 basis points to 2.94%. The yield on the 30-year Treasury bond moved 9 basis points higher to 2.96%. Yields move inversely to prices and 1 basis point is equal to 0.01%.
Powell on Thursday reiterated the central bank’s determination to bring inflation down and said that aggressive rate hikes are possible as soon as next month.
“It is appropriate in my view to be moving a little more quickly” to raise interest rates, Powell said while part of an International Monetary Fund panel. “I also think there is something to be said for front-end loading any accommodation one thinks is appropriate. … I would say 50 basis points will be on the table for the May meeting.”
This comes after the IMF cut its global economic growth forecast on Tuesday, for both 2022 and 2023, largely due to the effects of Russia’s invasion of Ukraine.
Investors will be listening closely to Powell’s remarks for any more clues around the Fed’s plans to aggressively tighten monetary policy, in order to rein in inflation.
Concerns around inflation and the potential effect of tighter Fed policy has seen yields spike, with the 10-year hitting its highest point since late 2018 on Tuesday, at 2.94%.
Grace Peters, head of investment strategy EMEA at JPMorgan Private Bank, told CNBC’s “Squawk Box Europe” on Thursday that her team expected inflation to peak during the second quarter of this year, and then fall more materially toward the end of the year and going into 2023.
However, she said that given this peak in inflation would not have fed through into the economic data by the time of the Fed’s May and June policy meetings, it made sense that the central bank could go ahead with 50 basis point rate hikes, as had been priced into the market.
Peters said that “from a risk perspective, the concept of inflation peaking and therefore yields starting to peak out in due course as well, will offer some comfort for investors.”
Initial jobless claims came in slightly higher than expected at 184,000 for the week ending April 16, showing a decline of 2,000, the Labor Department reported Thursday. Dow Jones analysts estimated 182,000 first-time claims.
The Russia-Ukraine war remains in focus for investors, with the second phase of the conflict, focusing on the Donbas region in eastern Ukraine, fully underway.
Auctions are due to be held on Wednesday for $35 billion of four-week bills, $30 billion of eight-week bills and $20 billion of five-year Treasury inflation-protected securities.
— CNBC’s Holly Ellyatt contributed to this market report.