Pricing 5% into US bond yields

Powell’s comments had an impact on the bond market, with US bond yields reaching their highest level of the year. The two-year bond yield, which is sensitive to the policy rate, briefly exceeded 5 percent on Tuesday and rose to its highest level since November. The yield in question was traded at 4.983 percent on Wednesday. In October of last year, the two-year bond yield rose to its highest level since 2006 at 5.257 percent. George Goncalves, head of US macro strategy at MUFG, commented on the rise in bond yields as “The market is clearly stepping back and not wanting to fight even slightly hawkish messages.” Tom Porcelli, chief US economist at PGIM Fixed Income, said that markets are extremely sensitive to deviations from expectations in monthly data, and added, “If we are right that the recovery in inflation will not be linear, this will inevitably lead to volatile market reactions.”