The benchmark 10-year U.S. Treasury yield has moved further away from the important 5% level, following a surge in bond yields after comments from Federal Reserve Chairman Jerome Powell.
- The yield on the 2-year Treasury fell 1 basis point to 5.15%, after dropping 4.7 basis points to 5.171%.
- Thursday’s level was the third-highest of this year, based on 3 p.m. Eastern time figures from Dow Jones Market Data.
- The yield on the 10-year Treasury fell 3 basis points to 4.954%.
- On Thursday, the yield surged 8.5 basis points to 4.987%, the highest close since July 20, 2007.
- The 10-year traded as high as 4.996% during the New York session.
- The yield on the 30-year Treasury fell 2 basis points to 5.079%.
- The yield jumped 10.8 basis points to 5.101% on Thursday, marking the highest close since July 19, 2007.
What’s Driving Markets
The surge in the 10-year Treasury yield near the psychologically important level of 5% has come as investors shed long-dated U.S. government debt. This is due to concerns that strong economic data would lead to higher interest rates for a longer period from the Federal Reserve.
Read: Why stock-market investors are fixated on 5% as 10-year Treasury yield nears key threshold
Spike in 10-Year Treasury Yields Driven by Powell’s Cautious Outlook
The spike in 10-year Treasury yields on Thursday was a direct result of Federal Reserve Chairman Jerome Powell’s cautious outlook on interest rate increases. While Powell did not rule out the possibility of further rate hikes, he acknowledged that higher Treasury yields could actually help the Fed in its fight against inflation by tightening financial conditions.
Adding to the upward pressure on yields, investors had to contend with stronger-than-expected weekly jobless claims data. This combination of factors has led to a surge in Treasury yields and has caught the attention of market analysts.
Neil Wilson, the chief market analyst at Finalto, highlighted several key factors contributing to the spike in Treasury yields. These include the Fed’s quantitative tightening measures, a deteriorating long-term inflation outlook, a significant increase in fresh issuances, rising deficits, and the Bank of Japan’s impending market normalization process.
Looking ahead, the economic calendar is relatively quiet for Friday, with only a speech from Cleveland Fed President Loretta Mester scheduled for 12:15 p.m. This speech marks the last scheduled event before the blackout period preceding the Fed’s November 1 rate decision.
According to the CME FedWatch Tool, market expectations currently indicate a 98.9% probability that the Fed will maintain its policy interest rates within the range of 5.25%-5.5% on November 1. The likelihood of a 25-basis-point rate hike to a range of 5.5%-5.75% by January stands at 31.5%.
In conclusion, the recent spike in 10-year Treasury yields can be attributed to Powell’s cautious outlook on interest rate increases, as well as positive economic data and various other underlying factors. Investors will closely watch for any developments that may shape future monetary policy decisions.