U.S. bond yields rose sharply early Wednesday, with benchmarks hitting fresh 16-year highs before easing lower, amid concerns the Federal Reserve will keep interest rates higher for longer as buyers balked at political chaos in Washington.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
slipped by 2.5 basis points to 5.159%. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 2.7 basis points to 4.831%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
added 2.8 basis points to 4.955%.
What’s driving markets
U.S. government bonds have been under severe pressure in recent weeks as better-than-expected economic data of late encouraged Federal Reserve officials to continue their hawkish rhetoric, insisting it was likely interest rates may have to rise again and stay at elevated levels for longer than investors had until recently hoped. Job openings data for August released Tuesday exacerbated those fears.
“This fresh bout of anxiety has been prompted by new jobs data in the U.S. indicating that vacancies unexpectedly jumped in August,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
The trend accelerated as European traders got to their desks early Wednesday, with yields also propelled higher by concerns that the first ever ousting of a Speaker of the House of Representatives presented a picture of dysfunction from a government that expects to sell about $850 billion of debt in the last three months of the year.
“Fresh turmoil in Washington isn’t helping…This not only bodes ill for future debate on the debt ceiling, with fresh impasse expected, but this bout of political dysfunction could have much wider policy repercussions,” Streeter added.
As 10-year Treasury yields at one point rose close to 4.90%, a fresh 16-year peak, the 30-year U.S. government bond yield moved above 5% for the first time since August 2007, according to Reuters. Germany’s 10-year note
BX:TMBMKDE-10Y,
the eurozone benchmark, rose above 3% for the first time since 2011.
However, most yields eased back from session highs after their initial spikes.
Bond investors may be hoping that some softer economic data can halt the yield surge, so they will be closely eyeing the U.S. ADP private sector employment report for September, due at 8:15 a.m. Eastern, the final reading of the S&P services PMI for September at 9:45 a.m., as well as the August factory orders and the September ISM services report, both at 10 a.m.
There will also be more chatter from Federal Reserve officials. Fed Governor Michelle Bowman is due to speak at a banking conference at 10:25 a.m., and Chicago Fed President Austan Goolsbee will give welcoming remarks at banking symposium, starting at 10:30 a.m.
Markets are pricing in a 71% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on November 1, according to the CME FedWatch tool.
The chances of a 25 basis point rate hike to a range of 5.50 to 5.75% at the subsequent meeting in December is priced at 38%.
The central bank is not expected to take its Fed funds rate target back down to around 5% until October 2024, according to 30-day Fed Funds futures.
Read the full article here
