Tuesday saw an increase in U.S. Treasury yields, with the benchmark 10-year note reaching its highest level in more than a week as a result of better-than-anticipated economic statistics and remarks from a Federal Reserve member suggesting the central bank may maintain high interest rates for an extended period.
Economic statistics revealed that orders for American-made goods fell by 2.1% in July, reversing an increase from the previous month, but this was less than the 2.5% drop predicted by experts surveyed by Reuters. The information was released after Friday’s employment report suggested that the labour market was loosening and a another study indicated that the industrial sector was stabilising.
Despite emphasising that he presently sees nothing that would necessitate a move towards increasing the cost of short-term borrowing again, Federal Reserve Governor Christopher Waller said the most recent set of economic data was allowing the U.S. central bank space to assess whether it needed to raise interest rates once again. Waller issued a warning, however, saying that traders shouldn’t believe the central bank’s run of rate hikes is over.
Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania, said, “We kind of ran into this on Friday with the economic data coming in somewhat soft of the labour market side and then the manufacturing data kind of going in the other direction.”
The yields’ increase was a little too pronounced; while a slight reversal makes some sense, their degree of increase left many people perplexed.
The yield on the standard 10-year Treasury note in the United States increased by 9 basis points on Tuesday to 4.26% from its previous high of 4.268%, which occurred on August 25.
The 30-year bond’s yield increased 9 basis points to 4.373% as well.
Barnes added that traders were positioning themselves and that Treasury rates were likely under pressure to rise due to the anticipated surge in corporate supply that often occurs after the Labour Day vacation.
The difference between the yields on two- and 10-year Treasury notes, a key measure of economic forecasts, was at a negative 70.4 basis points on the U.S. Treasury yield curve.
The two-year U.S. Treasury yield increased by 10 basis points to 4.968%, generally moving in lockstep with predictions for interest rates.
Five-year U.S. Treasury Inflation-Protected Securities (TIPS) have a breakeven rate that was last at 2.266% after ending at 2.214%.
The market currently expects inflation to average 2.3% per year for the ensuing ten years, according to the 10-year TIPS breakeven rate, which was last at 2.3%.