Treasury Yields Rise for 2nd Session

The yield on the US 10-year Treasury note slipped to around 4.7% on Monday, retreating from an 18-month high as investors awaited a busy week of labor market data, highlighted by Friday's closely watched monthly US jobs report. Last week, the Federal Reserve left interest rates unchanged, although three officials dissented, warning that waiting too long to act could eventually require more aggressive policy tightening. Markets are currently pricing in about a 68% chance of a 25 basis point Fed rate hike in September. Meanwhile, reports indicated that Fed Chair Kevin Warsh is considering reducing the number of policy meetings from the current eight per year. Investors have criticized Warsh's efforts to limit forward guidance on the path of interest rates, while the Fed continues to face mounting pressure to do more to rein in inflation.

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.