US three-month Treasury yields jump on hawkish Fed comments

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Three-month US Treasury “T-bill” yields shot up 10 basis points to 0.6 per cent in late afternoon trading, after New York Fed president William Dudley said the case for a rise in interest rates has become “a lot more compelling”.

Mr Dudley’s speech followed other hawkish remarks from Robert Kaplan, president of the Federal Reserve Bank of Dallas, and John Williams, president of the San Francisco Fed.

The move is notable given the fact T-bills have remained subdued due to concerns over the upcoming debt cieling deadline in March, despite longer dated yields rising off the back of higher growth and inflation expectations.

The debt ceiling is not expected to be as contentious as it was under the previous administration, which had to grapple with opposition in Congress, but Republicans are still unlikely to willingly increase the amount of borrowing the US government is permitted to do with some wrangling.

Without a solution on the table, the US treasury has been forced to reduce T-bill issuance to pull down its cash balance, creating high demand for existing T-bills, pushing prices higher and holding yields low.

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