Treasury yields extend rise, with 10-year rate highest since 2007

Yields on 10- and 30-year Treasurys established fresh multiyear highs on Monday, as traders awaited Federal Reserve Chairman Jerome Powell’s Jackson Hole speech at the end of the week.

What happened

  • The yield on the 2-year Treasury
    rose 5.6 basis points to 4.990% from 4.934% on Friday. Monday’s level is the highest since July 6, based on 3 p.m. data from Dow Jones Market Data. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    jumped 8.8 basis points to 4.339% from 4.251% Friday afternoon. The rate closed at its highest level since Nov. 6, 2007.

  • The yield on the 30-year Treasury
    rose 7.6 basis points to 4.455% from 4.379% late Friday. The 30-year rate closed at its highest level since April 27, 2011, when it reached 4.462%.

What drove markets

The trend of higher-for-longer yields remained intact on Monday, despite the fact that traders still expect the U.S. central bank to be approaching the end of its rate-hike campaign and reaching its so-called terminal level for interest rates.

Investors will be eager to hear how Federal Reserve officials’ thinking may be shifting, when Powell gives a speech on Friday at the annual Jackson Hole symposium.

Read: Treasury yields are surging as investors seek insight on a crucial monetary policy concept

Until then, markets are pricing in an 86.5% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Sept. 20, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% at the subsequent meeting in November is priced at 36.6%.

There was no major economic data released on Monday.

What analysts are saying

“It’s a mid-August Monday and all that implies — specifically, a limited willingness to fight the backup in yields despite investors’ widely held assumption that terminal has already arrived,” said BMO Capital Markets rates strategists Ian Lyngen and Ben Jeffery.

“It’s notable that the consensus from pundits for Friday’s Jackson Hole conference is that the Fed-speak will fall into the category of a nonevent,” they wrote in a note. “This isn’t to suggest that pockets of investors aren’t positioning for something more dramatic, even if it is a low-probability event that Powell will use the forum for anything more than reinforcing the messaging that it’s too soon to claim victory on the inflation front and the real economy appears to be absorbing higher policy rates with ease. For now.”

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