FX.co ★ US 10-Year Yield Extends Rebound

The yield on the 10-year US Treasury note climbed toward 4.50% on Wednesday, extending a sharp rebound from Monday’s seven-week low of 4.36%, as markets reacted to a more hawkish Federal Reserve outlook. Fresh data from ADP showed the US economy added nearly 100,000 private-sector jobs in June—slightly below forecasts, but consistent with a prolonged period of low layoffs across most industries.

The solid labor figures, together with signs of persistently elevated core inflation following disruptions to global oil supply linked to the war in the Middle East, reinforced expectations of further policy tightening. While crude oil prices have retreated to pre-war levels, refined fuel prices remain significantly higher, supporting the case for an additional Fed rate increase this year.

Interest-rate futures still imply a loose consensus for one more rate hike by December, though part of the market is now pricing in the possibility of multiple increases. At the same time, Fed Chair Kevin Warsh’s drive to reduce the central bank’s holdings of Treasuries and other bonds has added further upward pressure on yields.