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Short-term US government bond yields are trading around their 14-month highs.

The yield on the two-year Treasury bill recently traded around 0.258%, according to Tradeweb. That’s down from 0.260% at Wednesday’s close, the highest since April 2020.

The yield on the two-year note, which tends to fluctuate with monetary policy expectations, has surged since Federal Reserve officials signaled last week that they plan to raise benchmark rates earlier than planned.

For much of the past year, the two-year yield has traded in a range of around 0.15%, despite some investors’ expectations of a surge in inflation that could prompt the central bank to tighten its monetary policy. Now, some Fed officials have indicated that rates could increase as early as 2022.

Analysts and investors now expect the two-year yield to stabilize at these levels. Some say the recent surge in short-term yields may have been spurred by the unwinding of investors’ bets on a larger spread between short-term and long-term yields after the Fed meeting.

The Treasury Department sold $ 60 billion in two-year notes earlier this week at a yield of 0.249%, above the 12-month average auction yield of 0.156%, but below the high of 0.305% during of this period.

Jefferies expects the two-year yield to trade in a range of 0.24% to 0.28%, in part thanks to strong investor demand for short-term US government debt.

“There is still a lot of money floating in the front-end of the [yield] curve and although we can see the 2 moving up towards the higher end of the range, the decline is quite limited, ”the company’s economists wrote in a recent memo.

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