Treasury markets have calmed this week, but yields are signaling that investors still expect the Federal Reserve to be forced to raise rates sooner than it is saying.
The yield on the 10-year note edged down to 1.623% on Thursday, according to Tradeweb. It had closed as high as 1.730% last week, the highest in 14 months. Yields fall when prices rise.
Investors remain skeptical that the Fed won’t be forced to raise rates sooner and faster than it has said. The central bank has pledged to keep monetary policy loose until the economy is on a stronger footing. It also plans to let inflation rise above 2% for a period to offset years of weak inflation in the past.
Expectations of sharper rate rises are particularly visible in yields on inflation-protected Treasurys, which are often called real yields. Real yields represent the true income after inflation that investors can get from very low-risk assets relative to the rest of the economy.
The Fed reiterated last week that its rate-setting committee doesn’t expect to increase interest rates until after 2023. However, investors predict that it will, according to Sebastien Galy, senior macro strategist at Nordea Asset Management.
