FX.co ★ Treasury Yields Back on the Rise

The yield on the US 10-year Treasury note resumed its climb on Tuesday, reaching 5.26% and matching its highest level since 2007, extending Monday’s 8 bps increase as traders continued to price in further Federal Reserve tightening. Limited progress in US–Iran negotiations over ending the conflict and fully reopening the Strait of Hormuz kept risk sentiment fragile. A pullback in oil prices on Tuesday did little to ease concerns that still-elevated energy costs could sustain inflationary pressures and prompt additional Fed rate hikes.

At the same time, robust US economic activity, together with worries about large fiscal deficits and rising government debt, continued to weigh on the bond market. Still, both job openings and the Conference Board’s consumer confidence index surprised to the downside. Upcoming data releases—the PCE inflation report tomorrow and the jobs report on Friday—are expected to offer further insight into the strength of the US economy. Swaps markets are currently pricing in nearly a full percentage point of additional Fed rate increases over the coming year. The benchmark 10-year yield is up nearly 46 basis points so far in September.