US yields rise with rate hike views, 30-year bond yield hits highest since 2004

[NEW YORK/LONDON] US Treasury yields rose and the 30-year bond yield touched its highest level since 2004 on Thursday (Sep 24), with the recent rout in bond prices deepening as more Federal Reserve officials said additional interest rate hikes may be needed to curb high inflation.

The comments from the Fed policymakers, including Philadelphia Fed President Anna Paulson and New York Fed President John Williams, came a day after Fed Governor Michael Barr said the US central bank will likely need to deliver further rate hikes.

Traders now see a roughly 70 per cent chance of another increase when the US central bank next meets in October, according to CME Group’s FedWatch Tool. That expectation was 66 per cent by late Wednesday. The Fed raised rates last week for the first time since 2023 in an effort to control inflation.

Yields, which move inversely to prices, rose sharply on Wednesday after a stronger-than-expected US purchasing managers’ report reignited inflation fears and caused traders to increase bets on Fed rate hikes.

A poor auction of 5-year notes on Wednesday added to that day’s rise in yields. On Thursday, yields mostly held at higher levels after an auction of 7-year notes.

Bond prices around the world have been under pressure for months as the US-Israeli war on Iran has pushed up energy prices while growth has remained resilient. Oil prices also rose on Thursday as uncertainty about the Middle East war continued.

“I don’t doubt (the Fed will) raise another quarter or even half a point, but that still puts them behind where the market has lifted rates,” said Oliver Pursche, senior vice-president and advisor for Wealthspire Advisors in Westport, Connecticut.

“The market is reflecting the concerns over high energy prices, which is the key driver of inflation. The question is when will those subdue and how long will it take to normalise energy prices.”

The 30-year yield slightly extended its rise after the US Treasury Department said it bought back US$4.078 billion in 20- to 30-year bonds as part of its ongoing buybacks to support market liquidity. Bonds worth US$10.468 billion were offered during the operation.

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Earlier in the day, it said it would buy back up to US$6 billion in the debt.

The yield on the 30-year bond was last up 7 basis points at 5.472 per cent. It rose as high as 5.5016 per cent, its highest level since June 2004.

The yield on the benchmark US 10-year Treasury note was up 7.1 basis points at 5.185 per cent. It rose as high as 5.2251 per cent, a fresh 19-year high.

The US 7-year yield was last up 8 basis points at 5.133 per cent.

The 7-year note auction was “soft but not as bad as the 5-year yesterday,” wrote Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, noting that Thursday’s auction had a bid-to-cover ratio below the previous 12-month average.

The 2-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, was up 1.9 basis points at 4.914 per cent.

A closely watched part of the US Treasury yield curve measuring the gap between yields on 2- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 26.9 basis points. REUTERS