US 10-Year Treasury Yield Highest Since 2002

The yield on the US 10-year Treasury note continued to rise for a fourth consecutive session at the start of the final quarter of the year, reaching 5.33%, its highest level since early 2002. Meanwhile, the yield on the 2-year Treasury note, which is more sensitive to expectations for near-term Federal Reserve policy, rose to 4.91%. The 30-year Treasury yield, which is more sensitive to longer-term inflation expectations and fiscal and geopolitical risks, climbed to around 5.67%, also its highest level since 2002. The bond market remains under pressure from expectations that the Fed will have to tighten monetary policy further amid persistent inflationary pressures stemming from higher oil prices and the lack of a resolution to the conflict in the Middle East. Concerns over the US fiscal and debt outlook, alongside resilient economic data, are adding to upward pressure on Treasury yields. Traders have already priced in another Fed rate hike this year.

The US 10-year Treasury yield traded above 5.3% on Thursday, while the 30-year yield climbed to around 5.67%, 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.