The yield on the 10-year US Treasury note climbed to 4.7% on Friday, approaching the 19‑month high of 4.75% reached earlier in the week amid renewed aversion to longer-dated bonds. One-year inflation expectations from the University of Michigan rose again in August, marking the fifth consecutive month above 4%. This reinforced worries that the Federal Reserve may be underestimating inflation risks in the US economy, concerns that have been further amplified by the recent surge in energy prices linked to the war in the Middle East.
Comments from Fed Chair Warsh suggesting that an additional rate hike may not be his preferred tool for combating inflation helped push long-term yields higher, with the 30‑year bond reaching a 19‑year peak. Treasuries also faced pressure from fears that Japan could liquidate part of its sizable US debt holdings if the Ministry of Finance intervenes again to support the weakening yen. The selling in Treasuries persisted despite weaker-than-expected producer price data and disappointing retail sales figures.