US 10-Year Yield Rises Past 4.9%

The yield on the 10-year US Treasury note rose to 4.9% on Thursday as soaring energy prices supported the case for a Federal Reserve rate hike. New data showed that producer prices in the US rose 0.4% from the previous month in August with a surge in energy prices combining with signs of pass-through costs in broader sectors. The data coincided with a fresh rally in oil and product prices amid strikes between the US and Iran in the Middle East, prolonging the blockade of tankers in the Persian Gulf as major economies are forced to refill oil inventory. Yields were higher despite the Treasury's tripling of the notes and bonds buyback today. Besides the impact of higher energy prices, longer-term borrowing costs have been supported by record-setting corporate debt supply, with AI companies issuing north of $1.5 trillion in new issuance. On top of that, pressure on the Japanese yen drove Tokyo to repeatedly sell Treasury securities to defend the currency.

The yield on the 10-year US Treasury note traded around 4.85% on Thursday, hovering at its highest level since October 2023 after the Treasury Department announced plans to buy back up to $6 billion in longer-term debt, three times the usual amount, though the move still disappointed some investors who had expected a more substantial increase. Rising oil prices, fueled by escalating tensions between the US and Iran, also stoked inflation concerns and strengthened expectations for near-term interest rate hikes. In addition, mounting fiscal worries and record corporate debt issuance, with AI companies accounting for more than $1.5 trillion in new borrowing, added to upward pressure on Treasury yields. Meanwhile, continued weakness in the Japanese yen prompted Tokyo to repeatedly sell Treasury securities in an effort to support the currency. Investors also remained focused on key US inflation data ahead of the Federal Reserve’s policy meeting next week.

The yield on the 10-year US Treasury note rose toward 4.85% on Wednesday, the highest since October of 2023, after the Treasury Department tripled the buyback on notes and bonds to take place tomorrow. The department will purchase $6 billion in off-the-run securities, compared with Secretary Bessent's earlier announcement that buybacks would at least double to $4 billion, among the multiple moves by Washington to supress long-maturity yields. Yields on the long-end of the curve have surged this year as high oil prices due to the war in Iran raised underlying inflation, risking a rate hike by the Federal Reserve in upcoming meetings. This was magnified by record-setting corporate debt supply, with AI companies issuing north of $1.5 trillion in new issuance. On top of that, pressure on the Japanese yen drove Tokyo to repeatedly sell Treasury securities to defend the currency. Still, yields on the 10-year note recouped some gains after the fresh auction stopped-through 1.5bps.