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U.S. bond yields rose again early Thursday, with benchmark Treasurys hitting fresh 16-year highs, as traders awaited comments from Federal Reserve Chair Jerome Powell.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
climbed 1.3 basis points to 5.230%. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 5.2 basis points to 4.955%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
added 5 basis points to 5.038%.
What’s driving markets
The 10-year Treasury yield was trading only a few basis points below 5%, its highest since the summer of 2007, as investors continued to sell U.S. government debt on fears recent robust economic data would encourage the Federal Reserve to keep interest rates higher for longer as it battles inflation that remains nearly twice its 2% target.
Traders will be keen to hear whether Powell mentions the policy impact of the latest yield spike when he makes a speech at the Economic Club of New York, due to start at noon Eastern.
Meanwhile, there are also concerns that some important buyers of Washington’s debt are withdrawing their favor.
The U.S. Treasury International Capital, or TIC, report, published on Wednesday, showed that foreign investors were net buyers of long-term U.S. Treasurys in August.
However, Goldman Sachs noted that: “China was the largest net seller on our valuation-adjusted estimates.”
“The 5% watch for the U.S. 10-year intensifies… the context of further indications of notably weaker foreign demand as well as faltering domestic institutional buying,” added Mohamed El-Erian, adviser to Allianz, in a message on X.
Stephen Innes, managing partner at SPI Asset Management, said: “There’s a genuine concern that the forthcoming supply of Treasuries might overwhelm the typical demand from foreign investors upon whom the U.S. relies.”
U.S. economic updates set for release on Thursday include the weekly initial jobless claims report alongside the Philadelphia Fed October manufacturing survey, due at 8:30 a.m. Eastern. Existing home sales and leading economic indicators, both covering September, will be released at 10 a.m..
Other Fed officials making comments on Thursday include Chicago Fed President Austan Goolsbee speaking in Madison, Wisconsin at 1:20 p.m., and Fed Vice Chair for Superversion Michael Barr speaking at a Boston Fed conference at 1:30 p.m.
Ahead of the data and comments, markets are pricing in a 94% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on November 1, 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 December is priced at 37%. The central bank is not expected to take its Fed funds rate target back down to around 5% until October 2024, according to 30-day Fed Funds futures.
