US 10-Year Treasury Yield Little Changed

The yield on the US 10-year Treasury note rose to 4.73% on Friday, returning to its highest level since January 2025, as investors weighed remarks from Fed policymakers that reinforced the case for higher interest rates to curb inflation. Minneapolis Fed President Kashkari said he would prefer smaller rate hikes now rather than waiting, while Cleveland Fed President Hammack warned that the longer inflation remains elevated, the more difficult and costly it will be to bring it back to target. Dallas Fed President Logan said inflation risks are to the upside. These are the three FOMC members who dissented at this week's meeting, voting in favor of a 25bps rate hike, although the Fed left the federal funds rate unchanged. Even so, investors' expectations for a rate hike at the next policy meeting in September eased after Governor Warsh offered little guidance on the future path of monetary policy, although markets continue to price in roughly a two-thirds probability of a 25bps increase.

The yield on the US 10-year Treasury note eased to around 4.65% on Friday and was on track to finish the week lower as investors assessed the Federal Reserve’s cautious policy stance. The central bank left interest rates unchanged on Wednesday despite mounting inflationary pressures stemming from renewed hostilities in the Middle East, although three FOMC members voted in favor of a rate hike. While Chair Kevin Warsh reaffirmed the Fed’s commitment to bringing inflation under control and emphasized that policymakers would act if needed, he did not support an immediate increase and stopped short of providing clear forward guidance. Even so, markets are currently pricing in about a 63% chance of a 25-basis-point Fed rate hike in September. Meanwhile, geopolitical tensions remained elevated after the US military launched fresh strikes on Iranian targets in retaliation for Tehran’s attacks on US assets across the Middle East, reducing the likelihood of any near-term diplomatic agreement.

The yield on the US 10-year Treasury note edged up to 4.69% on Thursday, extending the previous session's 7bps increase and returning to its highest level since January 2025. Meanwhile, the yield on the 30-year Treasury bond surged to 5.23%, its highest level in 19 years, as investors continued to assess the latest FOMC decision and Chair Warsh's press conference. As expected, the Fed left the federal funds rate unchanged but three FOMC members voted in favor of a rate hike. While Chair Warsh reiterated the Fed's commitment to bringing inflation under control and stressed that policymakers would not hesitate to act if necessary, he was not among those advocating an immediate increase and refrained from offering clear forward guidance, leaving investors viewing the central bank as merely postponing what they see as an inevitable rate hike. The implied probability of a 25-basis-point rate hike in September has fallen to around 63%, down from nearly 80% before the Fed's decision.