2-year Treasury auction clears at 4.787%, highest since May 2024, as Barkin says firms can raise prices again

The U.S. Treasury sold $69 billion of new 2-year notes on Tuesday at a high yield of 4.787%, according to the auction results posted by TreasuryDirect. That is the highest yield at a 2-year auction since May 2024, when the notes cleared at 4.917%, and it is 58 basis points above the 4.204% the same auction paid on August 25. The Wall Street Journal flagged the milestone.

The sale came hours after Richmond Fed President Tom Barkin told a Baltimore audience that the Fed's quarter-point hike last week "will help" bring inflation down, and that whether more hikes are needed is an open question. "Will additional hikes be required, and how many? We'll see," he said, according to the text of his remarks.

What the auction numbers show

Demand was adequate, not strong. Bids totaled 2.63 times the amount sold, a touch above August's 2.60. The mix of buyers changed more than the headline ratio suggests. Working from Treasury's accepted-bid figures:

Shares are of competitive bids accepted. Indirect bidders took about eight percentage points less of the sale than in August, and dealers, who are obliged to bid, were left holding more. That is the pattern of an auction that needed a higher yield to clear, which fits the Journal's framing.

The cost to taxpayers is concrete. The 58-basis-point rise from August's auction, applied to $69 billion, works out to roughly $402 million a year in extra interest, or about $805 million over the two-year life of the notes. The new notes carry a 4.75% coupon, against 4.125% on August's issue.

Why the 2-year moved

The 2-year yield tracks where traders think the Fed's policy rate is heading over the next two years. At 4.787%, it sits about 0.9 percentage point above the 3.875% midpoint of the Fed's new 3.75% to 4% range, which is a market expecting rates to go higher, not lower.

Barkin's speech gave the reasoning in plain terms. He said more than 60% of the PCE price index is rising faster than 3% a year, so inflation cannot be blamed on a few categories tied to the Middle East conflict or tariffs. He cited the Richmond Fed's own surveys, where growth in prices businesses receive has averaged 3.5% since late 2023, nearly double the two years before the pandemic. In the CFO Survey the Richmond Fed runs with Duke and the Atlanta Fed, finance chiefs expect 4.1% price growth in 2027.

The part that matters most for the rate path is his account of pricing power. Before the pandemic, he said, the firms he talked to were convinced they could not pass on costs. Now many are testing the "pricing lever" again and finding "less resistance," especially from wealthier consumers and business customers. Barkin is not a voting member of the rate committee this year, Reuters noted.

Who it hits

The 2-year is the benchmark that sits under a lot of short-term borrowing a business actually does: two- and three-year equipment loans, vehicle financing, and fixed-rate term loans that lenders price off short Treasuries plus a spread. A borrower who got a quote in August and is signing now should expect the base rate under that quote to have moved up by about half a point. Savers are on the other side of the same trade: short Treasuries and the CDs that compete with them now pay more than they did a month ago.

Barkin also listed what could bring inflation down quickly: shocks reversing, consumers hitting their limit, a slowdown in the investment boom, a market correction or a weaker job market. Traders get the next reads on that with the flash PMI on Wednesday and jobless claims on Thursday. For more on the Fed's reasoning this week, see our pieces on Goolsbee and on last week's decision, and the 10-year Treasury chart.

Sources: TreasuryDirect auction results; Federal Reserve Bank of Richmond; Reuters; The Wall Street Journal. Buyer shares calculated by The Company Chronicle from Treasury data. This is market information, not investment advice.