Bond Yields Surge to Start 2022, What's Ahead?

Bond Yields 1:00 PM Central 

• 3-Month: 0.63% + 0.01 PP
• 6-Month: 0.21% +0.02
• 1-Year: 0.39% +0.01 PP
• 2-Year: 0.78% +0.05 PP
• 3-Year: 1.02% +0.07 PP
• 5-Year: 1.36% +0.11 PP 
• 7-Year: 1.56% +0.13 PP
• 10-Year: 1.63% + 0.13 PP
• 30-Year: 2.02% +0.13 PP

That represents significant one-day steepening of the curve. But there is still no expectation of a rate hike at the March 16 FOMC meeting.

The Rate Hike Odds Charts are from CME Fedwatch. They are based on Fed Fund Futures trading. 

May 4 Rate Hike Odds

Market participants believe May 4 is when the first hike will occur and the probabilities for June and later are skewed to the upside. 

June 15 Rate Hike Odds

Market participants have penciled in a second consecutive rate hike for June with a combined net chance of under two hikes rated only 44.9%. 

September 21 Rate Hike Odds

At the September meeting, the market does not quite forecast the third hike but the skew is heavily to the upside.

There is also a meeting on November 2 but let's skip to the end of the year forecast. 

December 14 Rate Hike Odds

I find the prospect of 7 rate hikes in 2022 more than a bit amusing.Here's a good way of looking at things.

• 0 to 2 hikes: 33.8%
• 3 hikes: 30.2% 
• 4 or more hikes: 36.0%

The median projection is now a bit more than 3 hikes this year. 4 and 2 rate hikes are at nearly equal odds, but 5, 6, an 7 hikes rated a combined 13% vs 0 to 1 hike at a combined 10.8%

The change in rate hike odds today reflect the surge in yields that also happened today.

I highly doubt the Fed gets in 3 hikes this year but if it does, then look for an inverted yield curve, not further hike projections in 2023.