U.S. 2-Year Treasury Yield Rises to 4.75%, Reflecting Fed Tightening

The U.S. Federal Reserve (Fed) has raised interest rates, shifting attention in the U.S. Treasury market towards short-term securities. According to Bloomberg on the 20th, the yield on the 2-year U.S. Treasury reached 4.75% following the Fed's rate hike, marking a multi-year high. The Fed increased the benchmark interest rate to a range of 3.75% to 4.00% on the 16th, and the 2-year yield is currently 0.75 percentage points above the upper limit of the benchmark rate. The interest rate futures market reflects a potential additional tightening of about 0.8 percentage points over the next year. Bond investors are paying attention to the gap between the Fed's and market forecasts, and the swap market is pricing in the possibility of the policy rate rising to 4.75%. The bullish outlook for short-term bonds is contingent on price stability, and rising energy prices or a strong U.S. economy could increase the Fed's tightening intensity. Bank of America has analyzed that the Fed should prepare for the risk of raising the benchmark rate above 5%. The upcoming auction of $69 billion in 2-year U.S. Treasuries scheduled for the 22nd is expected to be the first test of short-term bond investment demand.