US Treasury Yields Hit 24-Year Highs Amid Inflation and Fiscal Concerns

US Treasury yields for the 10-year and 30-year notes surged to 24-year highs on Monday, reflecting persistent negative sentiment in the bond market. The yield on the 10-year Treasury note rose by 3.4 basis points to 5.311%, while the 30-year bond yield increased by 3.2 basis points to 5.662%. Both yields reached fresh peaks, with the 10-year hitting 5.3493% and the 30-year climbing to 5.7029%. Meanwhile, the two-year Treasury yield, which typically reflects interest rate expectations for the Federal Reserve, fell by 0.4 basis points to 4.821%.

The gap between the two-year and 10-year Treasury yields widened to 48.8 basis points, its steepest since August 21, indicating heightened economic expectations. Despite a decline in oil prices due to increased Middle East exports and G7 supply pledges, bond yields remained elevated. Economic data suggesting prolonged inflation into 2027 also contributed to the upward trend. Jim Barnes, director of fixed income at Bryn Mawr Trust, noted that global fiscal concerns, particularly in developed markets, continued to weigh on the bond market.

Bond sell-offs have spread globally, driven by worries over government debt in France, higher inflation, and geopolitical tensions tied to the US-Israeli war with Iran. In Spain, yields rose after Prime Minister Pedro Sanchez called a snap election for November 29 following parliamentary rejection of housing decrees. The chances of a Federal Reserve interest rate hike in October diminished to a 76% probability, with traders favoring a December hike. The Fed had last raised rates in July to combat inflation.

Upcoming Treasury auctions, including a 3-year auction on Tuesday, will be closely watched, as weak demand in previous auctions exacerbated the bond sell-off. The breakeven rate on five-year Treasury Inflation-Protected Securities (TIPS) stood at 2.378%, while the 10-year TIPS breakeven rate was at 2.359%, suggesting market expectations of average annual inflation around 2.4% over the next decade.