US 10-Year Treasury Yield Pulls Back After Five-Session Rise

The yield on the 10-year US Treasury note rose past 4.8% in September, the highest since October of 2023, amid the risk of higher rates by the Federal Reserve, soaring supply of corporate debt, and concerns of a higher federal deficit. The US and Iran reignited strikes against each other and prolonged the period of halted energy supply from GCC countries. The resulting jump in oil and product prices added inflationary risks as multiple FOMC members flagging the possibility of a rate hike by the Federal Reserve this month, including Chairman Warsh and regional Fed presidents. Meanwhile, estimates that AI companies raised $1.5 trillion in debt this year limited primary dealers' allocation for government securities, also lifting yields. Lastly, Treasuries came under pressure on reports that Japan could intervene on the yen to cap its fresh rebound. The jump in yields was extended despite Treasury Secretary Bessent announcing an increase in the buyback of long-term securities.

The yield on the US 10-year Treasury note fell to 4.79% on Wednesday, pausing after a five-session rally that pushed the yield above 4.81%, its highest level since October 2023. A modest pullback in oil prices offered some relief on inflationary pressures, although hostilities in the Middle East remained elevated and energy prices hovered near six-week highs. Markets are now pricing in a nearly 66% chance of a 25 bps rate hike by the Fed later this month, up sharply from around 40% last week. The shift in expectations followed Fed Chair Kevin Warsh’s commitment to combating inflation in his speech at the Jackson Hole Symposium. Investors are now awaiting Friday’s jobs report for further clues on the health of the labor market. The ADP report pointed to a further slowdown in private-sector employment growth in August.

The yield on the US 10-year Treasury note climbed above 4.8% on Wednesday, moving toward its highest level since October 2023 as surging oil prices intensified inflation concerns and reinforced expectations for an imminent Federal Reserve interest rate hike. Oil prices advanced for a third consecutive session amid escalating hostilities between the US and Iran, raising concerns over further disruptions to energy flows from the Middle East. Meanwhile, Fed Chair Kevin Warsh’s commitment to combating inflation strengthened bets for a rate increase, with markets now pricing in around a 70% chance of a move this month. Fed Governor Michael Barr also said on Tuesday that the central bank should be prepared to raise interest rates if inflation fails to ease. Attention now turns to the ADP employment report due Wednesday and nonfarm payrolls on Friday for further clues on the Fed’s policy path.