Treasury Sell-Off Eases

The yield on the US 10-year Treasury note fell to 5.23% on Friday, supported by a retreat in oil prices amid reports that European countries were discussing the release of strategic reserves. The decline in oil prices eased inflationary pressures for now, while the upcoming jobs report will be closely watched for signs of labor-market strength and further clues on the Fed’s policy path. Markets have pared expectations for further Fed rate hikes to just one additional increase this year, with bets shifting from October toward December. Expectations for more than three hikes over the next 12 months have also receded. The benchmark 10-year yield climbed above 5.34% this week, its highest level since 2002, amid expectations of further tightening by the Fed, the lack of a resolution to the Middle East conflict, concerns over the US fiscal and debt outlook, and resilient economic data.

The yield on the US 10-year Treasury note held around 5.26% on Friday after retreating from multi-decade highs, as concerns over France’s fiscal and political outlook boosted demand for safe-haven assets. However, Treasury yields remained near their highest levels since 2002 amid expectations of further Federal Reserve tightening, signs of resilience in the US economy and growing concerns over the country’s fiscal and debt outlook. Investors now await the September jobs report for further clues on the strength of the labor market. Minneapolis Fed President Neel Kashkari said he remains uncertain about how high interest rates may need to rise to curb inflation, emphasizing that the Fed must take the necessary steps to bring inflation back to its target. Meanwhile, oil prices climbed as the US considered deploying an additional aircraft carrier and 10,000 troops to the Middle East, raising concerns over further disruptions to regional energy supplies and renewed inflation pressures.

The yield on the US 10-year Treasury note topped 5.3% on Thursday, its highest level since early 2002, before retreating slightly to 5.27%. The bond market has remained under pressure amid expectations of further monetary policy tightening by the Fed, as persistent inflationary pressures from higher oil prices and the lack of a resolution to the Middle East conflict continue to weigh on sentiment. Concerns over the US fiscal and debt outlook, along with resilient economic data, have added to the pressure. The ISM Manufacturing PMI edged lower in September but still pointed to solid manufacturing activity, while the prices paid gauge soared. The jobs report due tomorrow will provide a fresh update on labor-market conditions and will help shape expectations for the Fed’s policy path. Traders have fully priced in a 25 bps rate hike by the Fed this year, although the probability of such a move in October has fallen to 34% from 70% last week.