Ten-year Treasury yields pop above 4.3%, highest since 2008


U.S. bond yields continued to rise, reaching a fresh 15-year high on Thursday, as traders bet a resilient U.S. economy will encourage the Federal Reserve to raise interest rates further.

What’s happening

  • The yield on the 2-year Treasury
    BX:TMUBMUSD02Y
    was barely changed at 4.965%.

  • The yield on the 10-year Treasury
    BX:TMUBMUSD10Y
    added 3.1 basis points to 4.287%.

  • The yield on the 30-year Treasury
    BX:TMUBMUSD30Y
    gained 5 basis points to 4.406%.

What’s driving markets

Global government bond yields have climbed to the highest levels in about 15 years. The yield on 10-year Treasuries on Thursday at one point rose above 4.31%, the most since the 2008 global financial crisis, with the U.S. 30-year yield reaching a level last seen in 2011, as resilient economic data suggests central banks may need to raise interest rates further to quell inflation.

The minutes of the last Federal Reserve policy meeting, published Wednesday, showed policymakers remained concerned that inflation would fail to fall much further and more interest rate increases would be needed.

However, markets are pricing in an 87% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on Sept. 20, according to the CME FedWatch tool.

The chances of a 25 basis point rate hike to a range of 5.50 to 5.75% at the subsequent meeting in November is priced at 35%. The central bank is not expected to take its Fed funds rate target back down to around 5% until June 2024, according to 30-day Fed Funds futures.

U.S. economic updates set for release on Thursday include the weekly initial jobless benefit claims and the August Philadelphia Fed manufacturing survey, both due at 8:30 a.m. Eastern. The leading economic indicators report will be released at 10 a.m..

What are analysts saying

“The Fed continues to see below trend growth and a softening labor market as the path back to 2% inflation, with policy focused on ‘balancing the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening’. Apologies, but the economy cannot be managed, let alone by monetary policy, with such precision,” said Steven Blitz, chief U.S. economist at research firm GlobalData. TS Lombard, in a note published late Wednesday.

Blitz concluded his note: “[T]he Fed will ease when the unemployment rate broaches 4% and not before. Recessionary dynamics are in place, now aided by capital market price shifts, and this keeps my recession call in place. The risk of reacceleration as the slowdown from 2021 bottoms, that, in time, delivers an upward bias to inflation, is not a probability to be ignored. If there is no recession by autumn, a 6.5% funds and 6% 10Y UST sometime next year would not be a surprise. Everything working out as the Fed lays out, would be.”

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