Global Central Banks Hike Interest Rates, Boosting Treasury Yields

The early hours of Thursday saw an increase in U.S. Treasury yields as investors absorbed the news of multiple interest rate hikes implemented by global central banks. Notably, the Bank of England's hike was larger than anticipated, reflecting the persistent inflation pressures they aim to address.

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Yield Movements:

• The yield on the 2-year Treasury note rose from 4.707% to 4.744%.
• The 10-year Treasury note yield increased from 3.722% to 3.751%.
• The yield on the 30-year Treasury bond stood at 3.835% compared to the previous level of 3.807%.

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Market Analysis:Investors assessed the recent interest rate hikes by global central banks, underscoring the challenges faced by policymakers in their efforts to tackle stubborn inflation.

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The Bank of England surprised the market by raising its key rate by 50 basis points, twice the expected increment. This decision marks the 13th consecutive increase since December 2021, when rates were close to zero. The new benchmark rate of 5% is a response to the highest inflation among the Group of Seven countries, with the annual rate of price gains remaining at 8.7% in May, more than four times the BOE's 2% target.

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Norway's central bank also implemented a half-point hike, signaling the possibility of another increase in the near term. Similarly, the Swiss National Bank raised interest rates on Thursday.

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In Turkey, the central bank, led by newly appointed Governor Hafize Gaye Erkan, raised the key rate to 15% from 8.5%. However, this increase was smaller than anticipated as the country grapples with around 40% inflation.

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During testimony before the House Financial Service Committee on Wednesday, U.S. Federal Reserve Chairman Jerome Powell indicated that more interest rate hikes are likely this year due to inflation surpassing the target. Nonetheless, he remained ambiguous about the timing. The Federal Reserve kept rates unchanged last week, marking its first pause since commencing a series of hikes in March 2022, which raised the fed-funds rate from near zero to the current range of 5%-5.25%.

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