Another Day, Another Step Closer to a Tightening Bias

Two important psychological levels are being tested in the US Treasury market right now. The 2-year yield is trading just above 4.00% this evening, May 14 (chart). That's 25bps above the current federal funds rate (FFR) range of 3.50%-3.75%. That implies investors believe the Fed may need to raise the FFR by at least 25 bps in the foreseeable future.

The 30-year yield breached 5.00% on May 13, triggered by a $25 billion auction that drew such weak demand that it marked the first time since 2007 that the Treasury has auctioned a 30-year bond with a 5% handle. The 30-year has held above 5.00% since, trading at 5.06% this evening (chart). The 10-year yield is trading just above 4.50%, at 4.51% this evening.