Warsh's Words Spark Rate Hike Bets and Treasury Yield Surge

Treasury yields surged on Tuesday, led by a 12-basis-point jump in the 2-year note to 4.35%, its highest level in over a month.

The increase follows Federal Reserve Governor Kevin Warsh's speech to the Economic Club of New York, where he emphasized the need for continued vigilance against inflation and hinted at potential rate hikes if price pressures persist.

Warsh pointed to resilient consumer spending and a tight labor market as reasons to keep policy restrictive. His comments were seen as a direct signal that a September rate hike is back on the table, reversing earlier market bets that the Fed would hold rates steady through the fall.

The 2-year/10-year yield curve inversion deepened to minus 23 basis points, but analysts caution that this indicator's reliability has been questioned in an environment where the Fed is actively tightening.