Bond yields continued their upward march last week, sending the US 30-year rate above 2.75% for the first time since mid-2019 with yields climbing across the curve. According to Bloomberg, this comes after the $23 trillion Treasury market reported its worst-ever quarterly performance in the first quarter of 2022 with traders pricing in the aggressive normalization path the Fed has laid out.
Traders in overnight index swaps have lifted their bets on where the Fed funds rate will be by the end of this year to around 2.2% – from the current range of 0.25% to 0.5%. Fed officials forecast the neutral rate between 2% and 3%, with the median at 2.4%. On Friday, in an interview with Bloomberg Television, Goldman Sachs’ Chief Economist Jan Hatzius said the firm’s baseline is a rate of just over 3% by the middle of 2023. However, he cautioned:
| “If the economy does not slow and if we, in particular, don’t get a pretty substantial slowdown in employment growth, then you’d be looking at something that could go significantly higher, to the 4%-plus range… The goal for the Fed is to bring about a gradual tightening in financial conditions otherwise they’re not going to achieve the goals that they have – which is to stabilize the economy near full employment but not in an overheated state.” – Jan Hatzius |
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