The policy-sensitive 2-year Treasury yield jumped on Friday, finishing with its second week of advances, after two Federal Reserve policy makers reinforced the central bank's message that more rate hikes are needed to bring down inflation.
In remarks on Friday, Richmond Fed President Tom Barkin said strength in consumer spending and the labor market are keeping upward pressure on inflation. Stubborn inflation may require more rate hikes and he would be willing to support further increases in rates, he said. Barkin is not a voting member on the Federal Open Market Committee this year.
Earlier on Friday, Fed Gov. Christopher Waller said fallout from several bank failures earlier this year is likely to continue to play a role in the central bank's thinking on how much to raise interest rates. Waller was quoted by Bloomberg as saying during a question-and-answer session that "some more tightening" will probably be required to bring down core inflation.
Before Friday, investors appeared doubtful that the Federal Reserve would be able to deliver two more 2023 rate increases, as projected by policy makers on Wednesday.
Sentiment started shifting on Friday. After Barkin's remarks, traders priced in a slightly higher chance of a quarter-of-a-percentage-point rate hike in September following a similar move in July - which would take the Fed's main policy rate target to between 5.5%-5.75% three months from now, according to the CME FedWatch Tool.
In U.S. economic data on Friday the University of Michigan's consumer-sentiment index rose to a four-month high of 63.9 in June from 59.2 a month earlier.
"The era of coordinated global policy has more starkly come to end, as displayed this past week, with three major central banks [the Fed, the European Central Bank, and the People's Bank of China] taking three different stances on interest rates to support their respective economies," said Stephen Kolano, the Massachusetts-based managing director of investments for Integrated Partners.
"Markets appear to have accepted that policy, in the developed world, will remain restrictive for longer than originally expected given inflation remains well above central bank targets. The silver lining appears to be that inflation, while still higher than desired, has stopped surprising to the upside," Kolano wrote in an email.