(Bloomberg) -- Traders boosted bets on the pace of Federal Reserve policy tightening, pushing the Treasury yield curve to its flattest level since January, after comments by Chair Jerome Powell on the prospects for faster asset-purchase tapering.

The premium of the 10-year rate over the 2-year yield dropped as much as 9.6 basis points to 91.4 basis points as Powell, testifying before Congress, said the central bank can consider wrapping up tapering a few months sooner.

The 2-year rate climbed as much as 8.5 basis points to 0.57%, and its high for the day was around 14 basis points above the intraday low. 

Powell’s comments likely mean “that the Fed is going to continue tapering and removing liquidity from financial markets,” said Nancy Davis, chief investment officer at Quadratic Capital Management. “That means the potential for additional market volatility.”

Money markets now show around 58 basis points of hikes -- more than two standard quarter-point increases -- priced in by the end of 2022. They had been showing closer to 50 basis points at the close of trading Monday. The first full hike remains priced for July.

 

 

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