The yield on US government 30-year debt reached fresh multiyear highs on the last day of a bruising week after a gauge of consumer sentiment exceeded economist estimates. The 30-year Treasury yield, which reached the highest level since 2004 on Thursday , rose as much as five basis points to 5.53%.
It was below 5% as recently as early July. The 10-year note’s yield also reached a fresh multiyear high exceeding 5.22%.“There’s no real technical levels for people to hang on to, and it leaves things in a bit of a vacuum,” said Izaac Brook, US rates strategist at RBC Capital Markets.
“That allows yields to just keep drifting higher and higher.”Longer-term Treasury yields climbed on Friday even as those on shorter-term debt — which are more sensitive to shifting expectations for Federal Reserve interest-rate hikes aimed at throttling inflation — declined.
The 30-year yield was just over 5.50% on Friday afternoon in New York, about three basis points higher on the day, while the two-year was about seven basis points lower.“There’s too much priced in the front end,” said Monty Gandhi, rates strategist at SMBC Group.
“Short-term investors are looking to buy the front end thinking that any more bearishness should flow into the belly or a higher-for-longer expression.”Short-term yields reached multiyear highs earlier this week in anticipation that the September Fed rate increase, the first since 2023, would be the first of several as the US war in the Middle East undergirds energy prices.
Oil PricesFriday’s increase in long-term yields also was at odds with a drop in oil prices, which have been a dominant driver of daily changes in Treasury yields during the war-related supply shock. US benchmark West Texas Intermediate crude futures settled down 2.3% at $92.41.“With rate hikes now being delivered in direct response to higher energy prices, there is no clear near-term upper bound on hikes that can be priced in by the market,” Citigroup economist Andrew Hollenhorst said in a report.
Interest-rate strategists at Morgan Stanley increased their Treasury yield forecasts based on the firm’s recently revised forecast for additional Fed tightening, noting that market pricing of the Fed’s path explains most of the movement in 10-year yields.
Rising Treasury yields reflect not just the potential for higher energy prices to keep broader inflation gauges elevated but also indications that the US economy and companies are coping well with higher interest rates. The consumer sentiment gauge released Friday by the University of Michigan, despite falling to a four-month low in September held up better than economists anticipated.
Yield CurveFriday’s yield moves widened the gaps between short- and long-term yields, with key segments such as the two- to 10-year and five- to 30-year rebounding from the lowest levels in more than a year, reached earlier this week as short-term yield initially rose more.
Treasury Volatility Set for Biggest Jump in Year as Bonds ChurnActivity in Treasury futures was consistent with traders taking profits on those wagers. For example, a pair of block trades involving the five-year note and Ultra Bond futures contracts executed simultaneously shortly before 10 a.m.
New York time were done at price levels suggesting the five-year was bought and the Ultra Bond was sold.