Treasury Yields Edge Down Following Waller Comments

The yield on the US 10-year Treasury note fell to 4.74% on Thursday, extending a modest decline from the previous session, after rising to 4.81% earlier in the week, its highest level since October 2023. Comments from Fed Governor Waller that “if there is continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level”, offered support to Treasuries. Also, a moderation in oil price gains offered some relief from concerns over mounting inflationary pressures. Markets are currently pricing roughly a 50% probability of a Fed rate hike this month, down from around 70% earlier in the week, when a spike in oil prices heightened inflation concerns and following Fed Chair Warsh’s pledge at the Jackson Hole Symposium to keep inflation under control. Investors now await Friday’s jobs report for an update on the labour market, while the next key inflation readings are due next week.

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.