Treasury Yields Climb on Inflation Concerns

The 10-year US Treasury yield climbed to 4.73% after Fed Chair Kevin Warsh warned that inflation has not meaningfully slowed, signaling that policymakers may have “work to do” to bring price pressures back to the Fed’s 2% target. In his first major speech since taking the chair in May, Warsh reiterated that 2% inflation is a firm and fixed objective and said financial conditions are not currently restrictive. He also emphasized that interest rates remain the Fed’s “predominant tool” for achieving its mandate. He added that recent PCE and CPI data, while better than expected, do not indicate a meaningful improvement in underlying inflation trends. His closely watched remarks offered more clarity on his economic and policy views after criticism that his more limited communication strategy had left investors with little guidance on the near-term outlook. Money markets subsequently priced in a near 50% chance of a September rate hike, according to CME FedWatch.

The yield on the 10-year US Treasury note traded around 4.67% on Friday after rising for two consecutive sessions, as investors awaited Federal Reserve Chair Kevin Warsh’s speech at the annual Jackson Hole symposium later in the global day for clues about the outlook for US interest rates. Treasury yields also found support from a hotter-than-expected US inflation reading this week that strengthened expectations for a Fed rate increase before year-end, with the probability of a hike by December remaining above 70%. For the upcoming September meeting, markets are currently pricing in around a 65% chance that the Fed will keep rates unchanged. Meanwhile, Kansas City Fed President Jeff Schmid said monetary policy is not restraining the economy. Elsewhere, investors continued to assess the implications of the US Treasury’s expanded debt buyback program, which heightened concerns about the risks of a US debt crisis and potential dollar weakness.

The yield on the 10-year US Treasury note climbed to around 4.66% on Thursday, rising for a second consecutive session as stronger-than-expected US economic data reinforced expectations for a Federal Reserve interest rate hike before year-end. The PCE price index increased 0.2% month-on-month in July, above estimates of 0.1% and reversing a 0.1% decline in June, while annual inflation rose to 3.7% versus forecasts of 3.6%. Investors now await Fed Chair Kevin Warsh’s speech at the annual Jackson Hole symposium on Friday for further clues, although he is not expected to offer a clear signal on the central bank’s policy decision in September. Meanwhile, investors continued to assess the Treasury’s plan to at least double its buybacks, with billionaire investor Stanley Druckenmiller arguing that the move undermines the Treasury market’s credibility and fails to deliver an opportunity for meaningful debt reform.