Treasuries Pare Losses From Fed Hike, Dollar Gains: Markets Wrap

(Bloomberg) — Treasuries pared losses as Federal Reserve Chair Kevin Warsh’s resolve to tackle inflation calmed markets following the central bank’s first interest-rate increase since 2023. Oil extended its decline.

The yield on the rate-sensitive two-year US note fell two basis points to 4.72% after climbing to the highest since 2024 in the prior session. Yields on the benchmark 10-year and the 30-year bonds both dropped by three basis points. Asian bonds reversed earlier losses and tracked Treasuries higher.

Elsewhere, the Bloomberg Asia Dollar Index dropped 0.2%, while a gauge of the US currency held around a one-month high. The moves came after Warsh struck a hawkish tone, saying the rate increase “removed a dose of accommodation.”

Money markets priced in about a 50% chance of another Fed hike in October.

Elsewhere, gold, which typically loses its appeal as rates rise, held its losses from the previous session, trading around $4,280 an ounce. Crude oil extended its drop with global benchmark Brent falling over 1% to near $104.30 a barrel. President Donald Trump also said the Iran war will end soon.

Asian stocks swung between small gains and losses, while equity-index futures for the S&P 500 Index and the Nasdaq 100 Index climbed over 0.5%. Earlier, Wall Street traders drove stocks to the lowest since July on bets the Fed will keep raising rates to combat inflation.

“The Fed had no choice but to give the market a hike or risk a much bigger bond market selloff, which is shown in the 12-0 vote,” wrote Byron Anderson, head of fixed income at Laffer Tengler Investments. “The Fed is trying to calm the bond market rather than signaling a hiking cycle.”

The Federal Open Market Committee voted unanimously to lift the benchmark rate by a quarter percentage point to a range of 3.75% to 4%. The Fed’s so-called dot plot, which shows policymakers’ projections for the path of interest rates, indicated one more increase this year.

Investors are now weighing how quickly the Fed may tighten further as inflation pressures persist. Its projections point to another hike this year, putting upcoming economic data in focus ahead of the October meeting. Attention now turns to policy decisions in the UK on Thursday and Japan on Friday.

“The committee removed references to inflation being driven by supply shocks, suggesting policymakers are increasingly focused on broader and more persistent inflation pressures rather than viewing recent price increases as largely transitory or externally driven,” said Daniel Siluk, portfolio manager at Janus Henderson Investors.

In other corners of the market, oil retreated on signs that some recent Middle East supply disruptions are easing, with traders also adjusting positions after a blistering rally.

Brent fell as much as 5% on Wednesday as Saudi Arabia sought to restore about half the capacity of its East-West pipeline within days after drone strikes forced its closure last week. Also, President Trump said the Iran war will end “very soon.”

What Bloomberg’s Strategists Say…

“Equity markets will find comfort as softer oil prices will be aligned with a more predictable path of interest rate hikes from the Federal Reserve. As long as investors can price for a gradual tightening path, with major companies delivering strong earnings, that is an outcome broadly supportive for stocks.

— Mark Cranfield, MLive Strategist. Click here for the full analysis.

Warsh reinforced the inflation-fighting message he delivered at Jackson Hole last month. Speaking to reporters Wednesday, he said too many categories of goods and services were showing annualized price gains above 3% over six- and 12-month periods.

President Donald Trump said on social media after the decision that US interest rates should be at 1% or lower, though he stopped short of directly criticizing Warsh.

Wednesday’s move may mark the start of a broader tightening cycle, with both policymakers and traders anticipating at least one more increase this year. Attention is now shifting to the timing and pace of further moves.

“History is clear that once the Fed begins raising rates, they do it multiple times,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management. “But the pattern is less clear about whether they will raise rates at consecutive meetings or leave rates unchanged” at some of them.

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.5% as of 9:55 a.m. Tokyo time Hang Seng futures fell 1.2% Japan’s Topix rose 0.7% Australia’s S&P/ASX 200 rose 0.3% Euro Stoxx 50 futures rose 0.4% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1461 The Japanese yen was little changed at 156.14 per dollar The offshore yuan was little changed at 6.7116 per dollar The Australian dollar was unchanged at $0.7088 Cryptocurrencies

Bitcoin rose 0.3% to $76,305.42 Ether rose 0.4% to $2,418.38 Bonds

The yield on 10-year Treasuries declined three basis points to 4.99% Japan’s 10-year yield was unchanged at 2.990% Australia’s 10-year yield declined three basis points to 5.32% Commodities

West Texas Intermediate crude fell 1.2% to $101.19 a barrel Spot gold rose 0.4% to $4,280.21 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Ruth Carson.

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