Treasury yields move lower after Fed kicks off hiking cycle

Treasury yields edged lower on Thursday, a day after the U.S. Federal Reserve raised interest rates for the first time in three years.

The benchmark 10-year Treasury yield was more than 6 basis points lower at 4.943%. The 30-year Treasury yield was down more than 4 basis points at 5.301%, while the yield on the 2-year note slipped more than 5 basis points to 4.675%.

One basis point equals 0.01%, and yields and prices move in opposite directions.

The Fed raised its benchmark interest rate by 25 basis points to a target range of 3.75%-4% on Wednesday, its first increase since July 2023. Markets had widely expected the central bank to approve a hike, after a series of hot inflation data and pressure on the bond market.

Fed Chairman Kevin Warsh said during a press conference on Wednesday that inflation has been “too high ... for too long.”

“We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed,” he said, adding that the Federal Open Market Committee had decided “this standard has not been satisfied.”

Fed officials also signaled that another rate hike is likely this year. The dot-plot grid of individual officials’ expectations indicated that 16 of the 18 participants expected another rate increase, with four seeing two more hikes as a possibility.

Traders are also watching the working relationship between Fed Chair Kevin Warsh and President Donald Trump, with the latter continuing to push for lower interest rates.  

“Interest rates in the United States should be 1 per cent, or less, because we are the best credit in the world — by far,” Trump said in a social media post.

He also told reporters on Wednesday that the Fed’s board is “very hostile … very political” and “doing the wrong thing.”

Bob Edwards, chief investment officer at Florida-based Edwards Asset Management, said in a note on Thursday that the bond market’s biggest moves “are likely now in the rearview mirror.”

“There is now a good opportunity for investors after this big move to lock-in these elevated yields,” he said. “If the Fed raises rates again, it would likely be at the December meeting, as the Fed is unlikely to announce interest rate changes at the October meeting, which is days before the midterm elections, for fear of appearing political.”

Investors turned to Thursday’s economic data for further clues on the economy’s health. Jobless claims data for the week ended Sept. 12 stood at 196,000, below the 207,000 that economists polled by Dow Jones expected. August’s housing starts also came in less than expected.