Treasury Yields Little Changed

The yield on the US 10-year Treasury note stood around 4.96% on Monday, remaining near its highest levels since October 2023 as investors prepared for the upcoming Federal Reserve policy meeting and assessed the impact of surging oil prices. Markets are currently pricing in an 86% probability that the Fed will raise its policy rate by 25 basis points on Wednesday, with another rate hike expected later this year. Data released Friday showed underlying inflation came in higher than anticipated as core CPI rose 0.3% month-on-month. Higher oil prices added further inflationary pressure after Saudi Arabia shut down the critical East-West pipeline, which provides an alternative route around the Strait of Hormuz. Meanwhile, the Treasury Department’s latest buyback operation, disappointed markets, with the US government repurchasing $5.2 billion in bonds, below the $6 billion maximum and roughly half of the $10.5 billion offered in the operation.

The yield on the US 10-year Treasury note was around 4.92% on Friday, slightly below Thursday’s levels but still close to 2023 highs, as traders weighed lower oil prices against a hotter-than-expected core CPI reading. Core CPI rose 0.3% month-on-month, up from 0.2% in July and above forecasts of 0.2%. The annual core inflation rate, however, slowed to a 2021 low of 2.4%, while headline CPI rose 0.4% as expected, leaving the annual rate at 3.4%. Following the release, the probability of a Fed rate hike next week jumped to around 90%, from roughly 70% beforehand, as the hotter-than-expected monthly core CPI reading bolstered the case for further monetary tightening. Meanwhile, the Treasury Department’s latest buyback operation resulted in weaker-than-expected purchases. The US government repurchased $5.2 billion worth of bonds, below the $6 billion cap and roughly half of the $10.5 billion offered in the operation.

The yield on the 10-year US Treasury note climbed to around 4.97% on Friday, scaling its highest levels since October 2023 after the US Treasury Department’s first expanded buyback operation resulted in weaker-than-expected purchases. The US government said it repurchased $5.2 billion worth of bonds, below the $6 billion cap and roughly half of the $10.5 billion offered in the operation. Treasury yields also moved higher after data showed US producer inflation accelerated in August as the Iran war drove up wholesale energy prices, with traders now awaiting the latest consumer inflation data. Markets are currently pricing in around a 71% probability that the Fed will deliver a 25-basis-point rate increase next week, up from 61% before the PPI report. Meanwhile, oil prices surged above $100 a barrel as the US and Iran showed no signs of backing down from the conflict, raising concerns over prolonged disruptions to global energy supplies and higher inflation.