The 5-year U.S. Treasury yield topped 3% on Friday, after Federal Reserve Chairman Jerome Powell’s suggestion that a 50-basis-point rate hike could be in the cards in May.
The yield on the 5-year Treasury note was last down 4 basis points at 2.937%. Earlier in the day it climbed as high as 3.05% and was higher than the rate on the 30-year Treasury bond.
This is known as a “yield curve inversion,” with investors selling out of shorter-dated bonds in favor of long-dated debt, indicating a lack of confidence in the health of the economy.
The yield on the benchmark 10-year Treasury note last moved 1 basis point lower to 2.903%. The yield on the 30-year was more than 1 basis point higher at 2.95%. Yields move inversely to prices and 1 basis point is equal to 0.01%.
Powell said on an International Monetary Fund panel moderated by CNBC’s Sara Eisen on Thursday that taming inflation is “absolutely essential.” He also said that hiking interest rates by half a percentage point is “on the table” for the Fed’s May policy meeting.
While the suggestion of a 50-basis-point hike was in line with market expectations, Powell’s comments still saw Treasury yields jump. Investors have become increasingly concerned about potential drag on economic growth that could come from rising inflation and the Fed’s efforts to control these pricing pressures.
Daniel Morris, chief market strategist at BNP Paribas Asset Management, told CNBC’s “Squawk Box Europe” on Friday that even if Powell’s comments were in line with expectations and what had been said by other Fed officials, markets are still having to digest a “much steeper, a much more accelerated rate path, than they thought was the case a week ago, a month ago or three months ago.”
When asked about the potential of a 75 basis point hike, Loretta Mester, president of the Federal Reserve Bank of Cleveland, told CNBC’s “Closing Bell” Friday “we don’t need to go there,” and said she would support a 50 basis point hike in May.
Morris said that markets would now be focused on when the rate hiking process would end, and where they would be in a year.
“And I think once that happens, and hopefully that’s soon, then I think we’ll see a real stabilization in markets,” he said.
