The 10-year US Treasury yield was little changed at 5.17% on Friday, holding near its highest level since June 2007 as a global bond selloff extended into a second week.
The 30-year Treasury yield was flat at 5.463%, after surging to levels not seen since 2004. The 2-year note yield held at 4.899%.
The move follows a sharp climb Thursday, when the 10-year yield jumped more than 10 basis points to as high as 5.223%, and the 30-year touched 5.501%, its highest since June 2004.
Global government bonds sold off in tandem this week, with Japanese government bonds, UK gilts, German bunds and other eurozone debt all hitting fresh highs, though eurozone and Japanese yields edged lower on Friday.
What’s driving the move
Federal Reserve Governor Michael Barr said Wednesday that additional rate increases will likely be needed to bring inflation back to the Fed’s 2% target.
Speaking at a housing affordability conference hosted by the Federal Reserve Bank of Chicago, Barr said “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.”
He said inflation “is above our 2% target and not clearly trending toward target in a timely way,” while describing last week’s quarter-point rate hike as a move “in the right direction.”
Barr’s comments came a week after the Fed raised its benchmark rate to a range of 3.75% to 4%, its first hike in three years.
Sixteen of 18 policymakers signalled at the time that at least one more increase is likely before year-end.
Bond markets have also been pressured by stubbornly high oil prices and a stronger-than-expected economic reading.
S&P Global’s flash PMI data showed US private-sector activity expanding at its fastest pace in more than five years in September, adding to concerns that inflation will stay elevated for longer.
Traders were pricing in a nearly 71% probability of a Fed rate hike in October as of Friday, according to CME Group’s FedWatch tool, up from roughly 64% earlier in the week.
What investors are watching next
Investors are due to watch Friday’s University of Michigan consumer sentiment report and durable goods data for further signals on the economy’s trajectory.
ING’s regional head of research for the Americas, Padhraic Garvey, and senior rates strategist Benjamin Schroeder wrote in a note published Friday that markets have likely already priced in most near-term rate hike risk.
“Ahead, we think that there are enough rate hike fears discounted at this juncture, and certainly enough to take care of perceived inflation risks,” they wrote.
But they cautioned that yields remain vulnerable on a separate basis: “Government bond yields are primed to remain under pressure on a pure debt dynamic theory, which translates into pressure for some re-widening in swap spreads, and especially in the 10yr area.”
The ING strategists also noted that Treasury Secretary Scott Bessent’s debt buyback programme has had some success in easing market strain, even as yields themselves keep climbing.
“So far, Treasury Secretary Bessent’s buyback programme has in fact been successful in the sense that it was followed up by tighter swap spreads,” they wrote.
The Treasury bought back $4.1 billion in its latest reverse auction on Thursday, part of an accelerated buyback strategy Bessent has used since August to try to steady long-term borrowing costs.
Rising yields have already fed through to consumer borrowing costs.
The average 30-year fixed mortgage rate climbed to 7.12% last week, its highest level in more than two years, according to the Mortgage Bankers Association.
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