Treasury yields fall, 5-year and 30-year rates remain inverted following Fed minutes

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U.S. Treasury yields fell on Thursday morning, with 5-year and 30-year rates remaining inverted, as investors digested the latest Federal Reserve meeting minutes.

The yield on the benchmark 10-year Treasury note ebbed 4 basis points to 2.5659% at 4:15 a.m. ET. The yield on the 30-year Treasury bond gave up 2 basis points to 2.6046%, while the 5-year rate moved 6 basis points lower to 2.6381%. Yields move inversely to prices and 1 basis point is equal to 0.01%.

Treasurys

Fed meeting minutes, released on Wednesday afternoon, showed that U.S. central bank officials planned to shrink its balance sheet by $95 billion a month. Fed officials also indicated that there could be one or more 50-basis-point interest rate increases ahead.

This hawkish tone from the Fed saw the 10-year Treasury yield notch a 3-year high. Investors have become concerned that more aggressive tightening by the Fed, in a bid to combat rising inflation, could actually hurt economic growth and lead to a recession.

Inversions in Treasury yields, with investors selling out of short-dated government bonds in favor of long-dated debt, have reflected these recessionary fears.

Simon Harvey, head of FX analysis at Monex Europe, told CNBC’s “Squawk Box Europe” on Thursday that the amount the Fed was withdrawing from the Treasury market wasn’t necessarily “too aggressive.”

He expected two consecutive 50-basis-point interest rates to be announced at the next Fed meetings.

After these two rate hikes, Harvey said the Fed would be looking to consider whether that is enough to anchor inflation expectations, to see if it could then continue to hike in 25-basis-point increments.

Harvey suggested that if this isn’t enough to get inflation under control, there could be a “reassessment in a higher terminal rate,” which is the end point for Fed rate hikes.

On Thursday, the Labor Department is due to release the number of initial jobless claims filed during the week ended April 2, at 8:30 a.m. ET. Economists expect 200,000 new unemployment insurance claims to have been filed last week.

Auctions are scheduled to be held for $35 billion 4-week bills and $30 billion 8-week bills.

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