Bond Market Swings as Investors Bet on Rate Hike

The US bond market swung on Friday as investors increased their bets that the Federal Reserve may hike interest rates soon to control inflation. The S&P 500 fell 0.2%, while the Dow Jones Industrial Average dipped 9 points, and the Nasdaq composite slipped 0.5%.

Following Chairman Kevin Warsh's speech at an annual economic symposium in Jackson Hole, Wyoming, the two-year Treasury yield jumped to 4.35% from 4.22%. This was a big move for the bond market, driven by traders upping their forecasts that the Fed will hike its federal funds rate as soon as next month.

Investors now see a nearly 58% probability of this happening, up from 35% seen a day earlier, according to data from CME Group. Warsh emphasized that short-term interest rates are the predominant tool for the Fed to control inflation and keep the job market strong.