US 10Y Yield Holds Gains on Strong Data

The yield on the US 10-year Treasury note held around 5.23% on Friday, holding a pullback from 24-year highs following a well-received 30-year bond auction, suggesting investors remain willing to purchase long-dated government debt despite the recent market selloff. Investors also weighed easing oil prices after President Donald Trump said the US was engaged in “productive discussions” with Iran and would refrain from attacking the country before the midterm elections. Meanwhile, markets are pricing in roughly an 82% chance that the Federal Reserve will leave interest rates unchanged this month, while the probability of a December rate hike stands at around 81%. On Thursday, Fed Governor Christopher Waller said additional rate increases would likely be needed to bring inflation back to the central bank’s 2% target. However, he emphasized that policymakers had “flexibility” over the pace of tightening, leaving open the possibility of a pause at the Fed’s upcoming October meeting.

The yield on the US 10-year Treasury swung around 5.3% on Thursday, after hitting a fresh 24-year high of 5.35% earlier in the session. The move came as traders continued to assess renewed gains in oil prices, which are adding to inflationary pressures and, in turn, reinforcing expectations of further Fed tightening. Minutes from the Fed’s September meeting showed that most policymakers expect another increase in the federal funds rate this year, although the timing remains uncertain. Fed Governor Waller said on Thursday that additional rate hikes will likely be needed to bring inflation back to target, while emphasizing that there is “flexibility” around the pace of increases. Markets currently price an around 78% probability of the Fed holding rates steady in October, while the odds of a 25bps hike in December stand at around 69%. Meanwhile, today’s 30-year Treasury auction will provide a further test of demand for longer-dated government debt.

The yield on the US 10-year Treasury note steadied around 5.3% on Thursday after pulling back in the previous session, as the latest FOMC minutes pointed to a hawkish stance among policymakers amid elevated inflation risks. Minutes from the Federal Reserve’s September meeting showed that all 19 policymakers supported the September rate hike, while most believed another increase would be appropriate by year-end. Markets broadly expect the Fed to leave policy unchanged this month, while the probability of a December hike currently stands at around 78%. Investors now await the latest weekly US jobless claims data for further insight into labor market conditions. Meanwhile, concerns over a potential escalation between the US and Iran, along with continued threats to oil flows from the Middle East, kept crude prices elevated and inflation risks high.