Treasuries Show Significant Downturn After Seeing Initial Strength

After showing a strong move to the upside at the start of trading on Tuesday, treasuries saw a significant downturn over the course of the session.

Bond prices pulled back well off their early highs and into negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up 1.6 basis points to 4.558 percent after hitting a low of 4.483 percent.

With the modest increase on the day, the ten-year yield once again reached its highest closing level since October 2007.

Treasuries initially benefited from bargain hunting following the sell-off seen on Monday, which saw the ten-year yield soar by 10.4 basis points.

Buying interest waned shortly after the start of trading, however, as traders continued to express concerns about the outlook for interest rates.

JPMorgan Chase (JPM) CEO Jamie Dimon warned in an interview with The Times of India that rates could go as high as 7 percent.

“I am not sure if the world is prepared for 7%,” Dimon said. “I ask people in business, ‘Are you prepared for something like 7%?’ The worst case is 7% with stagflation.”

“If they are going to have lower volumes and higher rates, there will be stress in the system,” he added. “We urge our clients to be prepared for that kind of stress.”

Minneapolis Federal Reserve President Neel Kashkari also wrote in an essay posted on Tuesday that there is a 40 percent chance the Federal Reserve will have to push rates “meaningfully higher” to combat stubborn services inflation.

Last week, the Fed left interest rates unchanged as widely expected but forecast another rate hike before the end of the year as well as keeping rates at elevated levels for longer than previously anticipated.

Bond traders largely shrugged separate reports showing a sharp pullback in new home sales and a significant deterioration in consumer confidence.

A report on durable goods orders is likely to attract some attention on Wednesday, although trading activity may be subdued ahead of the release of key inflation data later in the week.

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