2-year Treasury yield surges above 4.1% after Fed hike, highest level since 2007

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The yield on the 2-year Treasury note topped 4.1% after the Federal Reserve raised interest rates by another 0.75 percentage point, and surged to its highest level since 2007.

The policy-sensitive 2-year Treasury rose 15 basis points to 4.113%, to a level not seen since October 2007 when it hit a high of 4.138%. Meanwhile, the yield on the benchmark 10-year Treasury rose to a high of 3.64%, its highest level since February 2011.

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The significant inversion, with short-term rates higher than long-term rates, points to the risk of a recession, some investors believe.

Yields and prices move in opposite directions, and 1 basis point is equivalent to 0.01%.

The Fed raised rates by 75 basis points, or 0.75 percentage point, at its September meeting, and signaled that it will keep hiking rates until the funds level hits a “terminal rate,” or an end level, of 4.6% next year.

The central bank plans to stay aggressive against inflation this year, raising rates to 4.4% in 2022, according to its median forecast released on Wednesday. With only two policy meetings left in the calendar year, chances are the central bank could conduct another 75-basis-point rate hike before the year-end.

Investors could turn to Treasurys as a source of safety, Michael Schumacher, head of macro strategy at Wells Fargo Securities, told CNBC’s “Fast Money.”

For relative safety, “I would look at the front-end of the U.S. Treasury curve. You’ve got the 2-year treasury yielding just about 4%. It’s gone up enormously,” he said. “If you think about the real yield, which a lot of people in the bond market focus on, it’s probably not a bad place to hide out.”

The 2-year rate started 2022 trading at around 0.73%. Wednesday’s move puts it 328 basis points (3.28 percentage points) above that level.

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— CNBC’s Jeff Cox and Yun Li contributed to this report.

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