US 10-Year Yield Holds Steady at 5%

The yield on the 10-year US Treasury note traded around 5% on Thursday, staying close to its highest level since July 2007 after the Federal Reserve raised interest rates for the first time in three years and signaled further tightening this year to contain inflation. The FOMC unanimously lifted the fed funds rate by 25 basis points to 3.75%-4%, as expected. Fed Chair Kevin Warsh also said inflation remains elevated, while data released last week showed core US inflation increased more than anticipated in August. In addition to rising inflation driven by surging energy prices, Warsh noted that Treasuries have also faced pressure as they compete for investor capital with a growing supply of corporate debt. Meanwhile, President Donald called for rates to be quickly reduced to 1% or below in a social media post, although he stopped short of criticizing Warsh.

The yield on the 10-year US Treasury note rose to above 5.01% on Wednesday, the highest in 19 years, after the Federal Reserve raised interest rates by 25bps. The move was largely expected by financial markets after recent data pointed to high inflation, low unemployment, and strong consumer spending. Projections by FOMC members pointed to one or two additional rate hikes by next year, consistent with upward revisions to forecasts on inflation and downward revisions to unemployment. Besides higher inflation due to soaring energy prices, the Chairman Warsh also acknowledged that Treasuries have been pressured by competing for capital allocation with soaring corporate debt supply. Still, longer-term maturities rose less than the shorter part of the curve as confidence that the Fed unanimously raised rates to fight inflation restored some credibility for the central bank, after Chairman Warsh had earlier downplayed the urgency of a higher funds rate to reign in price growth.

The yield on the 10-year US Treasury note eased to 4.95% on Wednesday from the 19-year high of 5.01% in the previous session after the Federal Reserve raised interest rates by 25bps, as expected. The move was largely expected by financial markets after recent data pointed to high inflation, low unemployment, and strong consumer spending. Longer-term Treasuries were supported by confidence that the Fed will raise interest rates should the data warrant restrictive financial conditions, restoring some credibility after Chairman Warsh had earlier downplayed raising rates to fight inflation. Projections by FOMC members pointed to one or two additional rate hikes by next year, consistent with upward revisions to forecasts on inflation and downward revisions to unemployment. Still, yields on the 10-year note are 80bps higher since the start of the year. The impact of soaring energy inflation magnified pressure from soaring corporate debt supply and widening budget deficits.