Treasury yields edged higher at the end of the week as persistent high energy costs fueled inflation concerns, strengthening expectations for further interest rate hikes by the Federal Reserve.
Yields across maturities rose, nearing recent peaks after a brief relief rally sparked by strong Treasury auctions earlier in the week. The two-year yield, highly sensitive to Fed policy, climbed to 4.79%, while the 10-year yield reached 5.25%. “The market is digesting a very volatile week,” noted Brij Khurana, a portfolio manager at Wellington Management, adding that prices often stabilize before making a significant move.
Global long-dated debt sales have surged in recent weeks, driven by inflation worries stemming from geopolitical tensions, particularly the war in Iran. Rising deficits have also contributed to bearish sentiment, pushing 30-year Treasury yields to levels not seen since 2002. However, yields dipped on Thursday following robust demand in the auctions of 10- and 30-year Treasuries. Brent crude hovered around $104 a barrel, with President Donald Trump’s announcement of a pause in further actions against Iran and Putin’s agreement to release diesel supplies influencing market sentiment.
Analysts remain cautious about declaring an end to the yield surge. “This marketplace is looking for an excuse to sell as opposed to buy,” said Padhraic Garvey, head of research for the Americas at ING Groep NV. The upcoming US inflation report on Wednesday is expected to provide key insights into the Fed’s future moves, with traders currently pricing in just a 20% chance of an October rate hike but fully expecting one in December. “A firm CPI reading will likely lift expectations for Fed policy, which in turn could lift long-term rates,” warned Marc Chandler, chief market strategist at Bannockburn.