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Long-term Treasury yields once again saw their highest closing levels since 2007 and 2011 on Tuesday amid the higher-for-longer theme on interest rates in the wake of the Federal Reserve decision last week.
What happened
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
was unchanged at 5.129%, the second-highest level of this year, based on 3 p.m. Eastern time figures from Dow Jones Market Data. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 1.7 basis points to 4.558% from 4.541% Monday afternoon. Tuesday’s level is the highest for the 10-year yield since Oct. 16, 2007. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
jumped 3.7 basis points to 4.695% from 4.658% late Monday. The 30-year rate ended Tuesday’s session at its highest closing level since Feb. 18, 2011.
What drove markets
Lingering concerns that the Federal Reserve will raise interest rates further and keep them elevated for longer briefly pushed the 10-year Treasury yield to almost 4.57% earlier on Tuesday.
The move followed last week’s Federal Reserve policy update and recent hawkish chatter from officials. Fed Gov. Michelle Bowman said it “will likely be appropriate” to raise interest rates further “because inflation is still too high.”
Meanwhile, JPMorgan Chase & Co. Chief Executive Jamie Dimon suggested to The Times of India that rates could go as high as 7%, which may have added to some bearish sentiment. However, buyers also emerged, briefly pushing the 10-year yield down to as low as 4.48% on the day.
Read: Gundlach says investors can sidestep carnage in stocks and earn 8% returns in bonds. Here’s how.
In U.S. economic updates on Tuesday, the S&P Case-Shiller 20-city home price index rose 0.9% in July. Consumer confidence declined to four-month low, while new home sales fell to a 675,000 annual rate in August versus a revised 739,000 in the previous month.
Treasury’s $48 billion of 2-year notes on Tuesday was “decent” and produced “middling” statistics, according to BMO Capital Markets strategist Ben Jeffery.
Traders are looking ahead to the Fed’s favored inflation gauge, the core personal consumption expenditure price index for August, which will be published on Friday.
Investors are also focused on the prospects of a U.S. government shutdown.
What analysts are saying
“The recent rise in yields is partly because investors are pricing in that policy rates will remain higher for longer, particularly after the Fed’s dot plot last week. But it’s also been driven by the growing realization that supply is set to remain elevated given mounting budget deficits, along with a small uptick in longer-term inflation expectations,” said strategist Jim Reid and others at Deutsche Bank.
“So after a decade plus of having little value in historical terms, it [the sovereign bond sector]is finally a competitive asset class again against others such as equities, which raises the question about what return equity investors should demand going forward,” the Deutsche Bank team said in a note.
Read: Treasury’s ‘weird’ security approaches 5% yield, signaling 10-year rate may too
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