US 30-Year Treasury Yield Tops 5.6%; Barclays Sees Risk of 6%

New York Fed President Says No Need to Rush

Short-Term Yields Fall

Long-Term Yields Rise on Inflation Concerns

John Williams, president of the Federal Reserve Bank of New York and a key voice in US rate-setting, said on September 29 there was no need to rush into another rate increase. His remarks fueled the view that the odds of a rate hike at the Federal Open Market Committee's October meeting had fallen, pushing the policy-sensitive two-year Treasury yield lower.

Longer-dated yields moved higher. The US 30-year Treasury yield climbed to its highest level since 2002 as lingering inflation concerns triggered selling in long-term bonds.

The 30-year yield touched 5.62% intraday, its highest level since 2002. It ended at 5.592%, rising for a sixth straight session. The 10-year Treasury yield closed at 5.255%, up 0.013 percentage point from the previous session.

Cristina Hooper, chief market strategist at Man Group, told the Financial Times that the rise in long-term yields reflects growing concern about the sustainability of US government finances as well as inflation. Laura Cooper, head of credit at Nuveen Asset Management, said short-term inflation risks remain because of energy prices. Nuveen has cut its exposure to long-dated Treasuries but has yet to start buying on dips, she added.

Barclays Capital said in a risk scenario that the US 30-year Treasury yield could rise to 6%. The bank said heavy investment related to artificial intelligence could boost productivity and lift potential growth, bringing about a structural rise in the neutral rate.

The US two-year Treasury yield, which is highly sensitive to monetary policy, fell 0.035 percentage point from a day earlier to 4.889%. Traders linked the move to Williams's speech at the University at Buffalo, where he said it may be appropriate to raise the target range for the federal funds rate once more by year-end if the economy evolves broadly in line with expectations. In Williams's view, the quarter-point increase delivered at the September meeting means policymakers do not need to hurry and have time to gather more information.

CME FedWatch showed that the probability of a rate increase at the October 27-28 FOMC meeting implied by futures markets fell to 50.4% from 70.9% after Williams's speech. Evercore ISI said that was most consistent with the Fed skipping October and raising rates in December.

Hawkish comments from other Fed officials continued. Alberto Musalem, president of the Federal Reserve Bank of St. Louis, said in a London speech on September 29 that monetary policy remains somewhat accommodative even after the September increase. Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said policymakers should consider responding if persistent supply shocks begin to emerge. Federal Reserve Governor Michael Barr, speaking at the Detroit Economic Club, also signaled the possibility of another increase, saying there is still no clear trend showing inflation returning to 2% in a timely way. With Fed officials sending mixed signals on further tightening, the timing of any additional increase is expected to hinge on the September jobs report due on October 2 and the consumer price index due on October 14.

Hwang Jung-su, New York correspondent, Korea Economic Daily, hjs@hankyung.com