US Bond Yields Rise Further

The US 10-year Treasury yield rose to 5.3% on Wednesday, approaching its highest level since 2002, as the bond market appeared largely unshaken by softer-than-expected inflation data. The PCE price index rose 0.3% in August, below expectations for a 0.4% increase, while core PCE advanced 0.2%, also missing forecasts. Meanwhile, final Q2 GDP data showed the US economy expanded at an annualized rate of 2.2%, up from the earlier estimate of 1.5%, while the ADP report showed private-sector employment growth exceeded expectations in September. Treasury yields remain elevated as persistent energy-driven inflation and a resilient economy have reinforced expectations for further rate hikes. While expectations for a near-term hike eased following today’s data, markets are still largely expecting another hike in December.

The US 10-year Treasury yield hovered around 5.25% on Wednesday, remaining near its highest level since 2007 as investors assessed a batch of economic data. The PCE price index rose 0.3% in August, below expectations of 0.4%, while core PCE increased 0.2%, also missing forecasts. On an annual basis, headline PCE inflation stood at 3.4%, below expectations of 3.7%. Meanwhile, final Q2 GDP data showed the US economy expanded 2.2%, up from an earlier estimate of 1.5%, while the ADP report showed private-sector job growth exceeded expectations in September. Treasury yields remain elevated amid persistent energy-driven inflation, a resilient economy and hawkish Fed signals that have supported expectations for further rate hikes. However, New York Fed President John Williams said the Federal Reserve does not need to rush into another rate increase following the hike earlier this month. Markets are now pricing in a below 40% chance of a 25 bps rate hike in October.

The yield on the US 10-year Treasury note held around 5.23% on Wednesday, remaining near its highest level since 2007, while the 30-year yield climbed as high as 5.62%, reaching levels not seen since 2002. Bond yields remained elevated amid persistent energy-driven inflation, a resilient US economy and hawkish signals from Federal Reserve officials that strengthened expectations for further rate hikes. Fed Governor Michael Barr reiterated that additional rate increases will likely be necessary to bring inflation under control, while New York Fed President John Williams said another rate hike “late this year” could be appropriate. Markets are currently pricing in nearly one percentage point of Fed rate increases over the next 12 months. Investors now await Wednesday’s PCE price index report, the Fed’s preferred inflation gauge, followed by Friday’s closely watched monthly jobs report, which could reinforce expectations for further policy tightening.