US Treasury yields: Investors weigh economic outlook

The 10-year Treasury yield, which serves as a benchmark for mortgage rates and a barometer of investor confidence, rose to its highest level since 2007 on Tuesday.

The 10-year Treasury yield rose slightly more than 9 basis points to 4.781%. The 30-year Treasury yield rose to 4.874%, also the highest since 2007.

The Treasury to 2 years the yield, which is sensitive to expectations about where the Federal Reserve will set its own key borrowing rate, rose slightly to 5.129%.

Yields and prices move in opposite directions and one basis point equals 0.01%.

Survey of job offers and labor rotation in August released on Tuesday showed a still tight labor market, giving the Federal Reserve the green light to keep raising rates.

In recent public statements, Fed policymakers have signaled disagreement over whether another rate hike is needed before the end of the year, but agree that rates will need to remain elevated for what could be a period of time prolonged

The central bank’s Federal Open Market Committee has been using rate hikes to reduce inflation that officials see as too high even as the rate has come down sharply from its peak in mid-2022.

“Inflation remains too high and I expect that it is probably appropriate for the Committee to raise rates further and keep them at a restrictive level for some time to return inflation to our 2% target in a timely manner,” the governor said of the Fed, Michelle. Bowman said in prepared remarks Monday.

Also on Monday, Fed Vice Chairman for Supervision Michael Barr said it is less important to focus on another hike and more critical to understand that rates will likely remain high “for some time.” And Cleveland Fed President Loretta Mester, who has not voted on the FOMC this year, said “we may have to raise the fed funds rate one more time this year and then hold it for a while “.

Market uncertainty remains as to when and if a rate hike may be implemented. There are two central bank policy meetings left this year, from October 31 to November. December 1 and 12-13. Market prices Tuesday morning pointed to just a 25.7% chance of a rise on Nov. 1, but a nearly 45% chance in December, based on futures prices measured on Nov. 1 . CME Group’s FedWatch tool.

The increase in yields comes despite US lawmakers being able to do so avoid a government shutdown as they passed a last-minute spending bill Saturday night. This has given them time to finish the necessary government funding legislation. There could be a stop negatively affected the US credit rating as well as the country’s economy.

The rate jump has reignited talk of the market’s “bond watchers,” a term coined by economist Ed Yardeni to describe the impact when fixed-income investors leave the market because of worries about the debt of USA

Persistently high fiscal deficits are one factor in rising borrowing costs. The public debt has risen above $32.3 trillion this year. Debt has risen to nearly 120% of total gross domestic product.

“The concern is that the escalating federal budget deficit will create more bond supply than can meet demand, requiring higher yields to clear the market; this concern has been the Bond Watchers’ entry signal,” he wrote Yardeni on Tuesday morning in a note titled “Bond Vigilantes are on the move.”

“The Wild Bunch now appears to have taken full control of the Treasury market – we are watching to see if the high yield market is next,” he added. “We still count on moderate inflation to stop the beatings in the bond market.”