Bond Report: Treasury yields up near multi-year highs as Powell speech eyed later in week

United States

Bond yields rose on Monday, leaving benchmark rates hovering near 15-year highs as traders eyed a speech by Fed Chair Jay Powell at the end of the week.

What’s happening

  • The yield on the 2-year Treasury BX:TMUBMUSD02Y rose less than 1 basis point to 4.953%. Yields move in the opposite direction to prices.
  • The yield on the 10-year Treasury BX:TMUBMUSD10Y gained 3.8 basis points to 4.290%.
  • The yield on the 30-year Treasury BX:TMUBMUSD30Y advanced 4.7 basis points to 4.427%.

What’s driving markets

The trend for bond yields to trundle higher remained intact early Monday. The 30-year Treasury yield at one point hit a fresh 12-year peak of 4.44% and the 10-year note flirted with its highest rate since 2008 as investors continued to price in concerns about increased supply and recent better-than-expected economic data.

Investors will be keen to hear whether these stronger surveys of activity have shifted Federal Reserve thinking when Chair Jay Powell gives a speech expected Friday at the Jacckosn Hole symposium.

Until then, markets are pricing in an 89% probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on September 20, according to the CME FedWatch tool.

The chances of a 25 basis point rate hike to a range of 5.50 to 5.75% at the subsequent meeting in November is priced at 32%.

The central bank is not expected to take its Fed funds rate target back down to around 5% until June 2024, according to 30-day Fed Funds futures.

There are no noteworthy economic datapoints due Monday.

What are analysts saying

“Before the anticipated Jackson Hole at the end of the week, the U.S. Treasury will sell 30-year TIPS on Wednesday and 20-year bonds on Thursdays. Both maturities are usually disliked by investors, especially the 20-year notes, which have been re-introduced recently after the pandemic,” said Althea Spinozzi, senior fixed income strategist at Saxo Bank.

“The focus is going to be on both auctions’ bidding metrics and whether demand remain strong despite an increase in supply. US Treasury yields remain in an uptrend, and…higher yields may be in the cards.