U.S. Fed swaps price in March and May rate hikes, expect peak at 5.3%
BNN Bloomberg
Wall Street traders fully priced in quarter-point increases at both of the U.S. Federal Reserve’s next two meetings — and a higher eventual peak for interest rates.
The May overnight index swap contract rose to 5.11 per cent, more than 50 basis points above the current effective fed funds rate. The market also priced in a higher so-called terminal rate, with the July contract rising to 5.31 per cent, reflecting a roughly 70 per cent chance of a third quarter-point hike in June.
The moves accompanied the latest increase in U.S. Treasury yields to their highest levels of the year, with the two-year note’s rising as much as 7 basis points to 4.71 per cent, within 10 basis points of a multiyear high reached in November.
Treasury yields erased their early rise and were lower by 2 to 5 basis points across the curve late in New York trading, with the shift reflecting a squaring up of an oversold market before the long weekend. The policy sensitive two-year was sharply higher on the week, up from 4.52 per cent.
