The sell-off in US government bonds continued Thursday as Federal Reserve Governor Christopher Waller signaled that further interest-rate hikes may be needed to bring inflation back under control, while leaving the timing of those moves uncertain.
The 10-year Treasury yield climbed six basis points to 5.34%, moving closer to its highest level since 2002.
The 30-year Treasury yield rose five basis points to 5.71%, remaining near a 24-year high, while the two-year yield gained five basis points to 4.81%.
Higher oil prices added to inflation concerns, with Brent crude futures hovering around $105 a barrel.
Waller’s comments added fresh pressure to the bond market, which had steadied in the previous session after a strong auction of 10-year Treasury notes.
What Waller said
Waller said he expects additional rate increases will likely be needed if economic data continue to come up as expected.
“If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2% goal”
He also said that another hike may not necessarily come at the Federal Reserve’s October meeting, while keeping the possibility of further increases open.
“But there is some flexibility about when those hikes will occur. The hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time,” Waller added while speaking at a Central Bank of Turkey forum in Istanbul.
The comments come as inflation has remained above the Federal Reserve’s 2% target for more than five years.
The Fed raised interest rates to 3.75%-4.00% at its September meeting, marking its first increase since July 2023. Officials at the time saw signs of stronger economic momentum.
Minutes from the September meeting released Wednesday showed that policymakers remained divided over the appropriate path for interest rates.
Some officials viewed higher rates as necessary to limit the effects of energy and other price shocks, while others were more concerned about emerging demand-driven inflation.
Investors on Wednesday were pricing in roughly a 20% probability of a quarter-point increase at the Federal Reserve’s October 27-28 meeting, down from around 70% in the days following the September decision.
Markets are expecting a rate increase at the Fed’s December 9 meeting.
Waller’s comments could reinforce expectations that the central bank will need to maintain a restrictive policy stance for longer as it seeks to contain inflation.
Another treasury auction ahead
The renewed bond-market pressure follows a $39 billion sale of 10-year Treasury notes on Wednesday.
The auction produced a yield of 5.30%, the highest since 2000, and helped stabilize Treasury yields during the session.
The government also sold $58 billion of three-year notes on Tuesday.
On Thursday, the Treasury is scheduled to sell another $22 billion of 30-year bonds, providing another test of investor demand for longer-dated US government debt.
Treasuries have remained under pressure since the war in Iran began, with inflation concerns, increased government borrowing and elevated term risk weighing particularly heavily on longer-dated securities.
The combination of higher oil prices, renewed expectations for additional Federal Reserve tightening and continued government borrowing is keeping pressure on the bond market, with the 10-year yield once again approaching levels not seen in more than two decades.
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