10-year Treasury yield hits 3% ahead of Fed meeting

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The 10-year treasury yield hit 3 percent for the first time since 2018. this is the latest milestone in what is considered the worst bond route in decades the move comes as traders wait to hear the fed’s decision wednesday on pop on a possible 50 basis point interest rate hike yahoo finances brian chung is here with some analysis on these market moves and brian wow

These are very big moves ahead of the fed meeting very big moves haven’t seen three percent on the 10-year yield since 2018 now of course we’ve actually backed off a little bit from those highs all this drift coming as the fed begins that two-day meeting down in washington where the expectation is that tomorrow at 2 p.m they’re going to announce a 50 basis point

Hike that would be the first time the fed has done what i’m calling that king size bump since 2000 and that would be pretty remarkable because you think about all the activity that we’ve seen the fed do over the last few months i would say that at the end of 2021 no one was saying that we’d be seeing these types of outsized moves in one go now of course as a proxy

For longer-term interest rates it makes sense that the 10-year and also the 30-year is going to make these moves ahead of this decision but again interesting to see whether or not maybe the fed hints at a larger hike in future meetings it’d be interesting to see what we get from the fed chairman when that press conference happens tomorrow at 2 30. is 75 basis points

Off the table then because i mean looking at the cme fed watch tool this morning even it put that 75 basis point rate hike at a 98.7 percent probability yeah well i mean that tells you right there probably unlikely the fed’s gonna do anything more than 50 at least for tomorrow but you look at the likes of goldman sachs saying they’re going to be listening in for

Commentary about the fed possibly signaling more hawkish moves in the june july meetings i mean you have some shops like nomura for example calling for those types of 75 basis points moves i think that’s a little bit outside of the consensus that we’re hearing so far but the point remains the same the fed’s been saying look we’re trying to take the punch bowl away

From the party that’s the terminology that we’ve heard in the past if they do a 75 basis point move in june and july that’d be the equivalent of not just taking the punchbowl away be like the cops showing up things shut down right so i don’t know if jay powell wants to do that because again it’s just the lid is already off on the 25 basis point standard moves that

We’ve been seeing in previous hiking cycles if you continue to move that overton window meeting after meeting after meeting that could introduce more volatility than we’ve already seen which i think most traders as we’ve been talking to over the last few weeks have said eh maybe we could do without some of this so if we’re talking analogies i don’t know what the

Balance sheet is in this whole analysis i don’t think there is one but we are going to get potentially more detail on the tightening of the balance sheet as well because that’s something that’s also going to be very important in terms of removing the stimulus yeah very in the weed stuff here but essentially people will recall that the federal reserve was buying a

Massive amount of u.s treasury’s agency mortgage about securities during the pandemic the idea was to reassure markets hey we got you we’re going to support you through this time the fed stopped those purchases in march but the idea now is well how can they shrink the nearly nine trillion dollar balance sheet that they have now so they’re likely going to kick off

The process in the meeting announcement tomorrow of beginning to shrink that uh balance sheet the game plan would be something to around 95 billion dollars per month they’re gonna have to ramp that up over the first three months but eventually at some point the fed wants to get the balance sheet to a smaller level we don’t know what that level is going to be so i

Think that’s the commentary that we’re going to be looking for from the fed chairman is it going to go back to the 4.5 trillion level that we saw prior to the pandemic probably not but then what’s the range right where do you stop and i think that’s what we got to listen in for tomorrow brian also interesting bank stocks are under pressure and i think investors

That has been beaten into their heads that yields go up this should be good for bank stocks but we’re not seeing that in the case the kbw uh etf bank index under pressure here i would argue these stocks are starting to price in a recession yeah well i mean when you talk about the yield movements that seems to be the big story that bank investors are probably looking

At but it’s interesting you always hear all the time bank analysts come on every quarter and say higher interest rates should be good for banks that gives them more wiggle room to price the way that they’re uh setting up their loans that should give them a little bit more profit right not necessarily the case in a rising rate environment where they’re doing that

Because recessionary risks are higher so i think that’s just one reminder first of all that net interest margin and higher interest rates doesn’t always mean the biggest kind of windfall for banks in a given cycle but i think we also have to remember that there’s other types of technicalities in there as well i’m not going to get into it but there’s something that

Rbc has been flagging gerard cassidy we’ve had on the show he’s been saying that there’s an accounting issue called aoci this is the way that accumulated other comprehensive income is accounted for on the balance sheet there’s some changes in the way that banks have to account for the types of securities portfolios that they have whereas rising interest rates would

Hurt those types of portfolios so as the banks are doing a lot more investment which they’ve been doing to counteract the impact of you know lower or flatter yield curve that’s actually going to hurt them a little bit more so maybe i’ll have to do a yahoo on that ocassion yeah yeah this morning here with us brian chung of course going to be watching closely what

Fetcher jerome powell and the committee says and comes out with on the headline they appreciate it this morning

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10-year Treasury yield hits 3% ahead of Fed meeting By Yahoo Finance