US 10-Year Yield Steady as Inflation Data Looms

The yield on the US 10-year Treasury note topped 4.8% on Tuesday, the highest since October 2023, as traders returned from a long weekend to a week packed with key economic data that could help shape expectations for the Fed’s next moves. The CPI and PPI reports due this week are expected to provide further clues on inflationary pressures, particularly those linked to rising energy costs. Headline inflation is expected to remain steady at 3.4%, while the core rate is forecast to slow slightly to 2.4%. Meanwhile, both headline and core producer prices are expected to accelerate, reaching 5.3% and 4.6%, respectively. Oil prices have also continued to rise amid ongoing strikes in the Middle East, exacerbating concerns over supply disruptions. Markets are currently pricing in roughly a 58% chance of a 25bps rate hike by the Fed next week. Meanwhile, Tuesday’s three-year Treasury auction kicks off a busy stretch of government debt issuance.

The yield on the US 10-year Treasury note held around 4.77% on Tuesday, remaining close to three-year highs as investors awaited US inflation data due this week that could provide greater clarity on the interest rate outlook ahead of the Federal Reserve’s policy meeting next week. Markets are currently pricing in roughly a 60% probability that the US Federal Reserve will deliver a 25-basis-point rate hike next week following stronger-than-expected jobs data released on Friday. The US economy added 162K jobs in August, well above expectations for a 56K increase, while employment figures for the prior two months were also revised slightly higher. The European Central Bank and Bank of Japan are likewise expected to raise interest rates this month. Meanwhile, investors continued to monitor developments in the Middle East as renewed US-Iran fighting drove oil prices higher, keeping inflation risks firmly in focus.

The yield on the US 10-year Treasury note rose nearly 3 basis points to 4.79% on Friday, reversing declines in the previous two sessions following a stronger-than-expected jobs report. The US economy added 162K jobs in August, well above forecasts of 56K, while figures for the previous two months were also revised slightly higher. The report prompted investors to ramp up bets on a Fed rate hike, with markets now pricing in a nearly 52% chance of a 25bps increase in the federal funds rate this month. Earlier in the week, bonds sold off following a surge in oil prices and a pledge from Fed Chair Warsh to tame inflation, before recovering after Governor Waller said he would support keeping rates unchanged if inflation continues to move toward the 2% target. Still, the Fed’s September decision remains highly uncertain for investors, with inflation data due next week expected to provide further clues on the central bank’s next move. US bond markets will be closed on Monday for a holiday.