SINGAPORE, March 8 (Reuters) - Heavy selling of
short-dated U.S. government bonds extended in Asia on Wednesday,
driving two-year Treasury yields to new 16-year highs as Federal
Reserve chair Jerome Powell's comments had traders scrambling to
price in more rate hikes.
Having broken above 5% for the first time since the middle
of 2007 overnight, two-year yields rose another 6.5 basis points
to 5.0759% in Asia trade. Yields rise when bond prices fall.
Fed funds futures were also under selling pressure
as interest rate markets priced in a near 70% chance of a 50 bp
Fed rate hike later in the month, up from around 30% before
Powell's comments.
Powell opened the door to a 50 bp hike by telling lawmakers
on Capitol Hill that recent economic data was stronger than
expected and so the speed and size of future hikes may also need
to increase.
"Jerome Powell's testimony shows that opinion has shifted
again with the strength in data suggesting the need for a higher
ultimate policy rate and potentially faster rate hikes," said
James Knightley, chief international economist at ING.
The yield on the five-year Treasury notes scaled
a four-month high of 4.374%, while longer-end yields remained
steady, reflecting concern that near-term hikes are going to
damage growth eventually.
That left benchmark 10-year yields at 4.0049%
and a whopping 107 basis points below the two-year yield , an unusual inversion of the yield curve that is
now at its deepest since 1981, according to Refinitiv data.
The gap between five-year and 30-year yields also slid further into negative territory, hitting -47.1 bps.
(Reporting by Rae Wee; Editing by Sam Holmes)
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