Treasury Yields Rise on U.S Data and Oil Prices to New 13-year Highs

Robust economic indicators in the United States, coupled with crude oil prices briefly surging past $95 per barrel, have catalyzed further selling in long-term Treasurys during Thursday morning's trading session. Consequently, the 30-year Treasury yield is steadily approaching levels last seen in 2010.

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Key Developments:

• The yield on the 2-year Treasury (BX:TMUBMUSD02Y) experienced a marginal decrease of less than 1 basis point, shifting from 5.142% on Wednesday to 5.092%.
• The yield on the 10-year Treasury (BX:TMUBMUSD10Y) registered a 2.6 basis point increase, reaching 4.651% from the previous 4.625% recorded on Wednesday afternoon. This marks the 10-year rate's journey toward establishing a new high, reminiscent of October 16, 2007.
• The 30-year Treasury yield (BX:TMUBMUSD30Y) exhibited a more pronounced surge, rising by 5.8 basis points to attain 4.789% from the late Wednesday figure of 4.731%. The 30-year yield is now on a trajectory towards its highest closing level since April 6, 2010.

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Market Dynamics:The escalation in oil prices, momentarily breaching the $95 per barrel threshold, is exacerbating the upward pressure on bond yields and rekindling concerns regarding inflationary forces.

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Furthermore, recent data reveals a slight increase in weekly initial jobless claims, rising to 204,000 from a revised 202,000 in the preceding week. This uptick is occurring against a backdrop of extraordinarily low layoffs and no indications of a growing unemployment problem. Moreover, revised figures indicate that second-quarter GDP exhibited a commendable growth rate of 2.1%, with the third quarter poised for even stronger performance.

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Federal Reserve Chairman Jerome Powell is scheduled to deliver remarks at 4 p.m. Eastern time on Thursday, while earlier in the day, Gov. Lisa Cook is also slated to speak. Market participants await the release of the Fed's favored inflation gauge, the core PCE index, on Friday.

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The persistent and notable uptick in long-dated U.S. government bond yields is inducing unease among fixed-income investors and causing some apprehension in the stock market. The ICE BofAML MOVE index, which monitors anticipated volatility in Treasurys, has surged by 15% over the five-day period concluding on Wednesday.

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Expectations regarding the Fed's forthcoming policy actions have remained relatively stable during this period. According to the CME FedWatch Tool, the markets are pricing in a 78.6% likelihood that the Fed will maintain interest rates within the range of 5.25%-5.5% on November 1. Meanwhile, the probability of a 25 or 50 basis points tightening move, potentially leading to a range of either 5.5%-5.75% or 5.75%-6% by December, stands at 37.5%.

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The central bank is not anticipated to lower its fed funds rate target to 5% or below until approximately November 2024.

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Additionally, the U.S. Treasury is poised to conduct an auction of $37 billion worth of 7-year notes on Thursday.

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