Yields on 2-year U.S. Treasury bonds rise by the largest amount in four years due to expectations of interest rate hikes

Short-term interest rates on U.S. Treasury bonds, which are most sensitive to the interest rates of the U.S. Federal Reserve, rose by the largest amount in four years and five months as of the fourth trading day.

The interest rate on 2-year U.S. Treasury bonds soared 38.8bp (1bp = 0.01% point) over the last four trading days, reaching 4.862% on the 12th (local time).

This is the largest increase since June 15, 2022.

This sudden surge gained momentum as the October price and employment indicators released after the U.S. midterm elections came out higher than expected, and Federal Reserve Director Christopher Waller hinted at the possibility of a big step, that is, a 0.5 percentage point interest rate increase in December.

Gennady Goldberg, head of U.S. interest rate strategy at TD Securities, told MarketWatch, a market media outlet, “The surge in short-term Treasury yields is a function of the market readjusting expectations about the Federal Reserve,” adding, “It reflects the forecast that the Federal Reserve will take a more hawkish stance in the coming months.”

He said, "Traders on the 12th not only increased the probability that the Federal Reserve will raise interest rates twice by January next year, but also adjusted the final interest rate forecast upward to 4.82% to reflect this."

The Federal Reserve unanimously raised the benchmark interest rate for the first time in three years in September and froze it in October.

The 10-year U.S. Treasury bond interest rate, a long-term benchmark, also broke the 5% mark on the 12th and rose to 5.145%.