Treasury Yields Resume Climb

The yield on the US 10-year Treasury note rose to 5.32% on Wednesday, returning to levels last seen in 2002 and reversing some of the relief seen in the previous session, as oil prices resumed their climb and concerns over inflation and tighter monetary policy re-emerged. Investors are also awaiting the release of the FOMC minutes later in the day for further details and insights into the Fed’s policy outlook following last month’s 25bps increase in the federal funds rate, the first hike in borrowing costs since 2023. The Treasury is also set to sell $39 billion of 10-year notes at auction on Wednesday. Meanwhile, the 30-year Treasury yield climbed to a fresh 24-year high of 5.70%, with a 30-year bond auction on Thursday also set to test demand in the Treasury market.

The yield on the 10-year US Treasury note steadied around 5.31% on Wednesday, remaining near 24-year highs as investors awaited minutes from the Federal Reserve’s latest meeting for clues on the outlook for monetary policy. Traders also monitored remarks from Fed officials, with policymakers increasingly signaling a less hawkish stance on interest rates following softer-than-expected PCE inflation and jobs data released last week. Markets are currently pricing in nearly an 80% chance that the Fed will keep policy unchanged this month. Meanwhile, Treasury bonds remained under pressure as concerns over persistent inflation, widening fiscal risks and increased issuance of AI-related debt continued to weigh on sentiment. Oil prices also advanced as renewed attacks on tankers in the Strait of Hormuz and continued fighting between Saudi forces and the Houthis heightened concerns over energy supplies, keeping inflation and potential rate hikes in focus.

The yield on the 10-year US Treasury note was at 5.26% on Tuesday, pausing a surge that peaked at a 24-year high of 5.33% touched yesterday, tracking the momentary dip in wholesale fuel prices. Oil bids were tamed by signs that some laden tankers passed through the Strait of Hormuz. The 10-year yield has surged over 110bps this year as risks of higher rates from the Federal Reserve, soaring federal deficit spending, and increasing corporate debt supply triggered a plunge in demand for duration. The price gauge in the ISM Services PMI surged to a four-year high, consolidating expectations that the Fed will deliver another rate hike this year. Meanwhile, a widening budget deficit raised the outlook for the supply of Treasury securities despite the Treasury's preference to service its increasing debt with coupon-less bills. The latest figures from the CBO showed net public debt rising from 101% of GDP this year to over 175% by 2056, assuming a 10-year yield below 4.5%.