US 10-Year Yield Pulls Back From 3-Year High

The yield on the 10-year US Treasury note traded around 4.78% on Thursday after pulling back from three-year highs, as investors continued to assess the outlook for Federal Reserve monetary policy. New York Fed Bank President John Williams said there is evidence that inflation continues to ease as the impact of tariffs fades, while higher energy prices have yet to spread to other services. Data on Wednesday also showed that US private employment growth slowed in August. Still, markets are pricing in around a two-thirds chance of a Fed rate hike later this month following Chair Kevin Warsh’s hawkish remarks on Friday. Investors now look ahead to the latest weekly jobless claims data on Thursday ahead of Friday’s August payrolls report for fresh insight into the state of the US labor market. Elsewhere, oil prices halted their rally after President Donald Trump said the latest attacks on Iran would be short-lived, easing inflation concerns.

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.