U.S. Treasury Yields Rise Amid Fed Rate Hike Fears and Strong Economic Data
- Treasury yields rose on Friday, intensifying recent selling pressure across global debt markets following hawkish commentary from the Federal Reserve and stronger-than-expected economic data.
- The 30-year Treasury bond gained more than 5 basis points to reach 5.516%, hitting levels not seen since 2004.
- The upward trajectory in Treasury yields was catalyzed by remarks from Federal Reserve Governor Michael Barr.
U.S. Treasury yields rose on Friday, intensifying recent selling pressure across global debt markets following hawkish commentary from the Federal Reserve and stronger-than-expected economic data. The benchmark 10-year Treasury note climbed more than 4 basis points to 5.209%, building on a surge that pushed it to its highest rate since June 2007 on Thursday.
Long-Term Yields Reach Multi-Year Highs
The 30-year Treasury bond gained more than 5 basis points to reach 5.516%, hitting levels not seen since 2004. In contrast, the 2-year note yield rose by less than 1 basis point to settle at 4.897%. One basis point equals 0.01%, and bond yields and prices move in opposite directions. Investors also monitored a broader international bond sell-off throughout the week. Japanese government bonds, U.K. gilts, German bunds, and other eurozone bonds touched fresh highs before eurozone and Japanese government bond yields edged lower on Friday.
Federal Reserve Commentary and Economic Catalysts
The upward trajectory in Treasury yields was catalyzed by remarks from Federal Reserve Governor Michael Barr. In a speech delivered on Wednesday, Barr stated that “further policy adjustments” can be expected to bring inflation down to target. Additional pressure came from stubbornly high oil prices and a purchasing managers’ index report that reached its highest level in more than four years.
Reflecting these shifting expectations, traders priced in a 66% chance of an interest rate hike in October, according to the CME FedWatch tool.
In a Friday note, Benjamin Schroeder, senior rates strategist, alongside Padhraic Garvey, ING’s regional head of research for the Americas, expressed their view that current pricing already factors in sufficient rate hike anxieties and anticipated inflation pressures moving forward. Meanwhile, government bond yields are set to face ongoing downward pressure driven by fundamental debt dynamics, which will likely cause swap spreads to re-widen, particularly across the 10yr sector.
ING
Durable Goods Orders Hold Steady
Amid the bond market volatility, economic data released Friday by the Commerce Department showed that durable goods orders in August were relatively unchanged. Economists surveyed by Dow Jones had previously anticipated a 0.3% decline for the month.