Treasuries whiplashed like 2009 as Fed hawks unleash uncertainty

This is shaping up to be the most volatile year for Treasuries in over a decade, as uncertainty about the impact of aggressive Federal Reserve tightening whipsaws yields.

The yield on 10-year U.S. notes has traded in a range of at least 10 basis points in 50 of 95 trading days so far in 2022. That puts it on track for an annual rate of more than 130 episodes, which would be the highest since 2009. Yields edged higher Thursday after tumbling overnight, reflecting the see-saw trend that’s gripping the world’s largest bond market.

“There’s extreme uncertainty about the medium-term growth impact of inflation-driven front-loaded policy tightening,” said Damien McColough, head of fixed-income research at Westpac Banking Corp. in Sydney. “That means a lack of any conviction from investors and a renewed negative equity-bond nexus as a result.”

The swings in U.S. bonds mirror the gyrations in equities, leaving investors with few places of refuge as central banks rush to withdraw stimulus to contain soaring inflation. Treasuries have been buffeted as the war in Ukraine and China’s Covid curbs stoke near-term price pressures while fueling growth concerns over a longer horizon.

The yield on 10-year Treasuries rose as much as three basis points to 2.92% Thursday, while similar-dated Australian rates pared an initial slide of 14 basis points to trade five basis points lower. Australia’s currency jumped 0.9% after falling 1.1% the previous session.

The S&P 500 Index slid 4% on Wednesday, its biggest one-day loss since 2020, and its 17% year-to-date decline is the worst start to any year since at least the 1940s. The Bloomberg Treasury Index has dropped 8.6% since end-December, making it the most dismal start to a year in almost five decades.