Treasury Yield Tops 1.70% as Rates Continue to Spike to Start 2022

Source: NYSE

The benchmark 10-year Treasury yield ticked higher Wednesday after the Federal Reserve released a summary of its key December meeting.

The 10-year traded at 1.7%, its high of the day, up about 3 basis points. The 2-year rate jumped by 5 basis points to 0.82%. Yields move inversely to prices, and 1 basis point equals 0.01%.

The minutes released Wednesday showed that Fed officials began plans to start reducing the amount of bonds it is holding on its balance sheet. Some officials even said that the balance-sheet reduction could start sometime after the Fed starts raising interest rates.

The Fed is tapering its bond purchases now and has already indicated to the market that it will raise rates soon after it finishes that taper in March. But the market is awaiting indications from the Fed on what it would do with its balance sheet once it's done increasing it. The minutes showed officials considering to shrink the balance sheet along with raising rates as another way to remove policy accommodation.

"The fact that we're having this discussion means the Fed is uncomfortable with the balance sheet. Nobody is saying increase it," Jim Caron of Morgan Stanley Investment Management said. "We're all saying reduce it. … We all know the direction is reduction. That's why the market is selling off. They're hearing reduction of the balance sheet."

The Fed also signaled it could get more aggressive in raising rates.

"Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated," stated the minutes.

On the data front, data compiled by ADP showed U.S. private payrolls grew by 807,000 in December. That's more than double the Dow Jones estimate of 375,000. To be sure, the survey covers through the middle of December, before the worst of omicron Covid-19 spread.

Jobs data is one indicator being used by the Fed to help determine its timeline on tightening monetary policy.

November's Job Openings and Labor Turnover Survey, published Tuesday, showed a record 4.53 million U.S. workers quit their jobs that month.

CNBC's Patti Domm contributed to this market report.

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