Treasury Yields Hit Multi-Year Highs on Inflation Concerns
US Treasury yields climbed at the start of the week, with the 30- and 10-year yields hitting multi-year highs. This rise was driven by growing inflation expectations, as indicated by a US Institute for Supply Management (ISM) survey. The survey revealed that while business activity in the services sector slowed, input prices surged significantly.
The yield on the US 10-year Treasury note increased by more than 3 basis points to 5.307%. Investors are increasingly concerned that high energy prices could push global bond yields even higher. The ISM Services PMI fell slightly below expectations, dropping from 55.4 to 54.9. Although new orders and employment sub-components showed improvement, the prices paid component highlighted rising costs for companies.
Adding to the pressure on global borrowing costs, France’s fiscal crisis amplified investor worries about next year’s budget. Meanwhile, in the commodity market, West Texas Intermediate (WTI) crude oil prices fell by over 2% to $89.29 on Monday. This decline followed the G7's decision to release more than 100 million barrels of crude and diesel, which boosted supplies and eased pressure from potential US diesel export bans.
Last Friday, US yields had cooled following a weaker-than-expected jobs report, which showed job creation of just 29K, missing forecasts of 90K. Looking ahead, traders are focusing on the release of the ADP Employment Change 4-week average figures on Tuesday, followed by the FOMC monetary policy meeting minutes on Wednesday. The chances of a Federal Reserve interest rate hike this month have diminished, with money markets pricing in roughly a 76% probability that rates will remain unchanged at the Fed's October 27-28 meeting.