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Ten-year UST Breaches 3% as Fed Hike Nears

The four-week increase in bond yields continued with a vengeance this week, as the ten-year note jumped above 3% once again.  The long end of the curve gained the most, re-steepening the yield curve slightly.  The rate moves come as the market seems to be re-assessing the likelihood of a continued increase in interest rates. 

Bond market participants have consistently expressed their disagreement with the Fed's inflation forecast (implying much lower levels of future inflation than the Fed expects), but now seem to be capitulating and sending yields a bit closer to levels consistent with the Fed's projections.  With a 25 bps rate hike nearly guaranteed next week, and another 25 bps hike very likely to occur before year-end, the only real remaining area of contention is the scale of Fed rate increases next year. 

The week's economic indicators were mixed as continued housing market weakness offset labor market strength, all against a backdrop of record highs in U.S. equity markets.

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