US long-term bond yields hit multi-year highs as markets rethink rate hike odds

Longer-dated US Treasury yields rose on Wednesday afternoon while 2-year yields stayed close to flat as investors reacted to slower inflation growth and lowered bets for a Federal Reserve interest rate hike in October.

Market Moves

Benchmark 10-year notes rose 4.68 basis points to reach 5.302 percent, hitting their highest level since mid-June 2007. The 30-year bond yield went up 5.42 basis points to 5.6482 percent, marking its highest point since June 2002. Meanwhile, the 2-year note yield rose 0.21 basis points to 4.891 percent. For September as a whole, 2-year and 10-year yields both climbed about 53 basis points, while 30-year yields rose roughly 39 basis points.

Economic Data

Data from the Commerce Department's Bureau of Economic Analysis showed the Personal Consumption Expenditures Price Index rose 0.3 percent in August following a downwardly revised 0.1 percent gain in July. Core PCE inflation stayed at 3.0 percent year-on-year in August after a downwardly revised 3.0 percent advance in July. LSEG data shows markets now price in a 63 percent chance that the Fed keeps rates steady next month, up from a 55 percent chance before the release. In other data, private payrolls from ADP showed US employment grew by 90,000 jobs in September, beating consensus expectations of 70,000, while the US trade deficit in goods widened sharply in August due to a surge in imports.

Reactions

Luis Alvarado, co-head of global fixed income strategy at Wells Fargo Investment Institute, noted that core PCE came in lower than the consensus expectation, but pointed out that the market already knew calculation changes would impact the number. Alvarado added that consumer and business pain in affordability remains alive and well, stating that the Fed is still behind the curve and needs to act further to rein in inflation. Prior to Wednesday, short-dated yields fell following comments from New York Fed President John Williams that suggested less urgency for more tightening. Investors are now watching for public comments from central bank officials, including Federal Reserve Bank of Minneapolis President Neel Kashkari, ahead of September's nonfarm payrolls report due out on Friday.

Context

Bond yields rise when bond prices fall, which often happens when investors demand higher returns due to economic uncertainty or shifting expectations about central bank interest rates. Major economic indicators like inflation readings and employment reports are closely watched because they directly influence how monetary policy decisions are made.