This week, investors were unnerved after the Fed signaled it would tighten policy more quickly to tackle inflation, and data showed a strong U.S. labor market. This caused stocks to drop on Monday following a solid first week of the year, pushing the Dow Jones Industrial Average and S&P 500 to their most significant one-day percentage drops in six weeks.
This week, the big U.S. banks will start reporting their corporate earnings, and according to rate futures, there is a greater than 70% chance of a rise to 0.25% in March and at least two more hikes by year-end.
U.S Treasury yields hit a high of 1.8080% in early trading; levels are last seen in January 2020, having shot up 25 basis points last week in their most significant move since late 2019.
Nicholas Farr from Capital Economics believes that Treasury yields will keep increasing.
Our forecast is that the 10-year yield will rise by around another 50bp, to 2.25%, by the end of 2023, as markets may still be underestimating how far the federal funds rate will rise in the next few years.
The greenback has failed to find significant support from the rising Treasury yields.
Oil prices have dipped but held onto to recent gains, having climbed 5% last week, helped partly by supply disruptions from the unrest in Kazakhstan and outages in Libya.
Cryptocurrencies declined as the risk-off sentiment took control. Bitcoin was down 0.21% to $41,788. U.S crude fell 0.85% to $78 per barrel, and Brent closed at $80, down 1%.