PiCK
US 10-Year Treasury Yield Tops 5.2%, Fueling Bets on Another Fed Rate Hike
Summary
- The US 10-year Treasury yield rose to 5.18%, while the 30-year yield reached 5.47% and the MOVE Index climbed above 100, adding to investor anxiety.
- Higher oil prices, with Brent at $106.60 and WTI at $94.61, along with hawkish remarks from Fed officials, increased the perceived likelihood of another rate hike.
- CME FedWatch showed a 70% probability of a benchmark rate increase, and despite strong US economic data, Wall Street stocks saw only limited moves as investors focused on oil prices, the Fed's rate path and whether 10-year yields stay above 5%.
Forecast Trend Report by Period
Longer-dated US Treasury yields extended their climb above 5%, adding to tension across global financial markets. The prospect of another Federal Reserve rate increase is also gaining traction as oil prices rise, the US economy remains resilient and Fed officials deliver hawkish remarks.
The benchmark 10-year Treasury yield rose above 5.15% during trading on September 24 and was trading around 5.18% later in the afternoon. The 30-year yield also climbed to about 5.47%, its highest level since 2004. The MOVE Index, a gauge of bond-market volatility, also moved above 100, underscoring investor unease.
Inflation concerns are at the center of the rise in yields. Brent crude for November settlement jumped 3.41% to settle at $106.60 a barrel, while West Texas Intermediate gained 2.66% to close at $94.61. Oil prices stayed elevated despite talk of possible negotiations between Iran and the US, with uncertainty over the Middle East persisting.
Remarks from Fed officials added to concerns about further tightening. John Williams, president of the Federal Reserve Bank of New York, said another rate increase by year-end would likely be appropriate. Anna Paulson, president of the Federal Reserve Bank of Philadelphia, also said additional tightening could be needed if the economy continues to evolve as expected. She added that inflation remains well above the Fed's 2% target.
Markets are rapidly pricing in the possibility of another increase. CME FedWatch showed the probability of an October benchmark rate hike rising to about 70%, up from 55% a week earlier and 11% a month earlier.
Stronger-than-expected US economic data is also adding to upward pressure on yields. Initial jobless claims fell to 197,000, while new home sales in August rose 6.4% from the previous month. The composite purchasing managers' index for September also climbed to 58.4, signaling continued strength in the US economy.
Even with rates at elevated levels, US stocks avoided a steep selloff. The S&P 500 fell 0.02%, the Nasdaq Composite rose 0.01% and the Dow Jones Industrial Average slipped 0.31%. Investors are watching oil prices, the Fed's rate path and how long the 10-year Treasury yield remains above 5% as the key variables for risk assets.
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