Market Extra: One-year Treasury yield is flirting with ‘magic’ 4% level as Fed tightens ‘on all cylinders’

by | Sep 15, 2022 | Stock Market

The yield on the 1-year Treasury note is testing 4%, a level that traders say could spill over into other rates and send shivers through financial markets, as the Federal Reserve presses forward in earnest with its campaign to shrink its $8.8 trillion balance sheet.That balance-sheet process, known as “quantitative tightening,” is intended to complement the central bank’s series of aggressive rate hikes, the next one of which is expected to arrive next Wednesday. The Fed “is now tightening on all cylinders” as the ”training wheels” come off QT following a slow start, according to BofA Securities rates strategist Mark Cabana. And traders say that’s one of the reasons behind the one-year yield’s moves on Thursday, which included briefly touching and going slightly above 4% before retreating again.“Four percent is a magic number and one that frightens a lot of asset markets, including equity markets, and basically everyone,” said head trader John Farawell with Roosevelt & Cross, a bond underwriter in New York. The Fed’s QT process is one of the reasons this is happening and “is adding to pressure on the front end of the curve.” A 4% yield is likely to spill over int …

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