Christopher Waller, Federal Reserve Governor, recently characterized the sharp rise in US bond yields as an "earthquake," sparking significant market speculation. This comes after 10-year Treasury yields witnessed a surge of over 100 basis points since the end of July, surpassing 5% last month for the first time since 2007.
Despite a government bond rally that brought the benchmark rate down to 4.58%, there remains uncertainty about the sustainability of this yield increase. Waller's comments have intensified discussions around potential future rate hikes, fueled by higher government borrowing.
However, Waller hinted that these elevated yields might lead to tighter financial conditions, which could reduce the necessity for additional hikes. Krishna Guha of Evercore noted that Waller's views were not part of any formal policy discussion.
While the Federal Reserve has not ruled out an imminent interest-rate hike, Waller's comments have added a new layer to market speculation regarding future monetary policy decisions. The recent developments in bond yields and their potential implications for financial conditions will be closely watched by investors and policymakers alike.
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