Bond Report: Ten-year Treasury yields highest since 2007 as traders price more Fed hikes


Benchmark bond yields rose to fresh 14-year peaks as investors continued to fret about stubbornly robust inflation and the higher borrowing costs required to defeat it.

What’s happening
  • The yield on the 2-year Treasury TMUBMUSD02Y, 4.567% rose 3.5 basis points to 4.589%. Yields move in the opposite direction to prices.
  • The yield on the 10-year Treasury TMUBMUSD10Y, 4.118% gained 1.2 basis points to 4.151%.
  • The yield on the 30-year Treasury TMUBMUSD30Y, 4.121% climbed 1.3 basis points to 4.140%.
What’s driving markets

The 10-year Treasury yield traded up around 4.15%, its highest since late 2007, amid lingering fears of more rate rises to come from the Federal Reserve.

The monetary policy-sensitive 2-year Treasury yield has jumped more than 380 basis points since the start of the year in response to the Fed’s attempts to push inflation back down to it’s 2% target.

“Risk sentiment continued to worsen…as U.S. bond yields soared on Fed officials’ hawkish rhetoric overnight; Minneapolis Fed President Kashkari said that U.S. job market demand remains solid and underlying inflation pressures probably have yet to peak,” said Stephen Innes, managing partner at SPI Asset Management.

An update on the U.S. labor market will come at 8:30 a.m. when the weekly initial jobless claims data are released. October Philadelphia Fed manufacturing index is also due at 8:30 a.m. September existing home sales and leading economic indicators will be published at 10 a.m. All times Eastern.

The renewed climb in Treasury yields comes after data on Wednesday showed U.K. consumer prices rising at a 40-year high of 10.1%.

“The hot U.K. inflation print was a stark reminder, if it were needed, that interest rate hikes remain on the cards globally,” said Richard Hunter, head of markets at Interactive Investor.

Markets are pricing in a 93% probability that the Fed will raise interest rates by another 75 basis points to a range of 3.75% to 4.00% after its meeting on November 2nd. The central bank is expected to take its Fed funds rate target to 5% by May 2023, according to the CME FedWatch tool.

The Treasury is due to sell $21 billion of 5-year TIPS at 1 p.m.

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