US 10-Year Treasury Yield Falls from Recent Highs

The yield on the US 10-year Treasury note eased to 5.28% on Thursday, after hitting a fresh 24-year high of 5.35% earlier in the session. The move came as traders continued to assess renewed gains in oil prices, which are adding to inflationary pressures and, in turn, reinforcing expectations of further Fed tightening. Minutes from the Fed’s September meeting showed that most policymakers expect another increase in the federal funds rate this year, although the timing remains uncertain. Fed Governor Waller said on Thursday that additional rate hikes will likely be needed to bring inflation back to target, while emphasizing that there is “flexibility” around the pace of increases. Markets currently price an around 78% probability of the Fed holding rates steady in October, while the odds of a 25bps hike in December stand at around 69%. Meanwhile, today’s 30-year Treasury auction will provide a further test of demand for longer-dated government debt.

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.