US 10-Year Yield Steadies as Fed Outlook Mulled

The yield on the US 10-year Treasury note steadied around 5.3% on Thursday after pulling back in the previous session, as the latest FOMC minutes pointed to a hawkish stance among policymakers amid elevated inflation risks. Minutes from the Federal Reserve’s September meeting showed that all 19 policymakers supported the September rate hike, while most believed another increase would be appropriate by year-end. Markets broadly expect the Fed to leave policy unchanged this month, while the probability of a December hike currently stands at around 78%. Investors now await the latest weekly US jobless claims data for further insight into labor market conditions. Meanwhile, concerns over a potential escalation between the US and Iran, along with continued threats to oil flows from the Middle East, kept crude prices elevated and inflation risks high.

The yield on the 10-year Treasury note was at 5.28%, 8 bps below the 24-year high touched earlier in the session as oil prices swung lower and softened the alarm over energy inflation. OPEC+ shipped laden tankers through the Persian Gulf to limit the crunch for global refiners. This coincided with a strong auction for 10-year notes, which stopped through by 1.7 bps. Still, long-maturity yields were close to their highest since the start of the millennium as the risk of high inflation was combined with robust growth, widening budget deficits, and soaring levels of corporate debt supply. Minutes from the Federal Reserve's last meeting showed strong consensus within the FOMC that higher rates are necessary and the labor market is at full employment. Policymakers also noted that the Treasury market is functioning well, but the central bank must be alert to frictions due to high yields. Over 80% of the rate futures market is positioned for at least one more rate hike by the end of the year.

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.