Treasury yields spike as data fuel Fed hike bets

Treasury yields surged after data showing U.S. economic strength bolstered speculation the Federal Reserve will have room to raise interest rates twice more this year.

Bonds retreated across the curve, with two-year yields – which are more sensitive to imminent policy moves – jumping 16 basis points to 4.87%.

The dollar erased losses. Swap markets indicate a 50% chance of a second hike by year-end. S&P 500 futures wavered.

U.S. jobless claims fell by the most since October 2021 in a week that included the Juneteenth holiday.

Gross domestic product was revised up notably to a 2% annualized advance in the first quarter, separate data showed.

Meanwhile, key gauges of inflation watched closely by the Fed were revised down slightly.

“The market is processing the recent strength in the economic data in both positive and negative ways, as solid economic data means that the economy is more resilient, but it also emboldens the Federal Reserve to keep raising interest rates,” said Carol Schleif, chief investment officer at BMO Family Office.

Fed Bank of Atlanta President Raphael Bostic said he favors keeping borrowing costs on hold, but that Chair Jerome Powell and other colleagues don’t agree with him.

Powell is signaling keenness to lift rates, having told a conference in Madrid just hours earlier that acting at consecutive policy meetings isn’t “off the table.”

In corporate news, Bank of America and Wells Fargo paced gains in financial companies as the biggest lenders passed the Fed’s stress test, clearing the way for payouts. Micron Technology rose on an upbeat forecast.