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Long-dated U.S. yields continued to rise on Thursday, sending the 10- and 30-year rates to their highest closing levels respectively since 2007 and 2011, as real or inflation-adjusted rates also climbed.
What happened
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
slipped 1.9 basis points to 4.959% from 4.978% on Wednesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
jumped 4.9 basis points to 4.307% from 4.258% Wednesday afternoon. It finished Thursday at its highest level since Nov. 7, 2007, based on 3 p.m. data from Dow Jones Market Data. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
rose 5.2 basis points to 4.411% from 4.359% late Wednesday. Thursday’s level is the highest for the 30-year rate since April 28, 2011.
What drove markets
The rise in long-dated yields was being mostly attributed on Thursday to higher real or inflation-adjusted rates that reflected the increasing cost of borrowing.
Ten- and 30-year real yields — as measured by rates on Treasury inflation-protected securities, or TIPS — rose to 1.979% and 2.102% respectively as of 3 p.m. Eastern time, according to Tradeweb. That left the 10-year TIPS rate at its highest level since mid-March 2009, while the 30-year TIPS rate is at its highest since mid-February of 2011.
Read: Why Treasury yields keep rising, causing pain for stock-market investors
Resilient economic data suggests central banks may need to raise interest rates further to quell inflation. Minutes of the Federal Reserve’s July 25-26 meeting, published on Wednesday, show policy makers were still concerned that inflation would fail to fall much further and that more interest rate increases could be needed.
On Thursday, however, fed funds futures traders were 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 was seen at 36.3%.
In U.S. economic updates on Thursday, initial jobless benefit claims fell 11,000 to 239,000 last week, reflecting a low level of layoffs, and the Philadelphia Fed manufacturing gauge for August had its first positive reading in a year.
See also: Leading index for economy falls for 16th month in a row — but still no U.S. recession
What analysts are saying
The rise in the 10-year Treasury yield over the past couple of weeks to over 4% “has been somewhat of a surprise to some market participants who’ve been positioned for lower interest rates on the 10-year Treasury,” said Yung-Yu Ma, chief investment officer for BMO Wealth Management in the U.S.
