Treasury Yields Scale 24-Year Highs

The US 10-year Treasury yield traded near 5.3% on Thursday, while the 30-year yield stood around 5.64%, with both reaching their highest levels since 2002 amid concerns that persistent energy-driven inflation could prompt tighter monetary policy. Deteriorating fiscal conditions, growing US government debt and weaker-than-expected bond buybacks have also weighed on the Treasury market in recent weeks. Oil prices remain elevated as the US and Iran make little progress in negotiations despite signs of recovering Middle East flows, raising inflationary risks. Meanwhile, data released Wednesday showed the US PCE price index rose 0.3% in August, below expectations for a 0.4% increase, while core PCE advanced 0.2%, also below forecasts of 0.3%. Markets now see roughly a 38% chance of a Federal Reserve rate hike in October, down from 51% before the PCE data. Investors also await the latest weekly jobless claims on Thursday and the September jobs report on Friday.

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.