The benchmark 10-year U.S. Treasury yield rose 0.31% to 3.473% and the two-year yield rose 0.21% to 4.146% on Jan. 26 as a fresh round of selling of U.S. Treasuries continued. The U.S. debt ceiling issue has put tremendous pressure on the U.S. Treasury market. Ron O’Hanley, chief executive of State Street, warned that U.S. Treasuries could lose their traditional safe-haven role if the U.S. credit rating is downgraded.
Several Fed governors reiterated their support for raising the target rate above 5% as soon as possible to show their determination to fight inflation. James Bullard, president of the St. Louis Fed, also expected the rate range to rise to 5.25%-5.50%, shocking the US bond market. U.S. financial research firm Zero Hedge cited a recent analysis by Bill Gross on Jan. 21 that continued high U.S. inflation has hedged some of the gains in U.S. Treasuries as dollar interbank rates have risen, amounting to an implicit default. This allows large institutional investors in U.S. Treasuries, including China, Japan, Germany and others, to continue to sell U.S. Treasuries.