The yield on the U.S. 10-year Treasury note climbed above 5.2% on Friday, reaching its highest level since 2007 as persistent inflation concerns, expectations for further Federal Reserve tightening and pressure across global bond markets drove another round of selling in U.S. government debt.
The benchmark yield has risen about 23 basis points over the previous three sessions, extending a sharp repricing in the Treasury market. The move comes after the Federal Reserve raised its benchmark interest-rate range by 25 basis points last week to 3.75%-4.00%.
Inflation Concerns Keep Pressure on Bonds
Recent comments from Federal Reserve officials have reinforced expectations that monetary policy may need to remain restrictive. Boston Fed President Susan Collins said this week that she sees an increased risk of inflation remaining notably above the central bank’s 2% target and supported the Fed’s latest rate increase.
Energy prices and uncertainty surrounding the conflict with Iran have added to those concerns. Earlier this week, markets briefly responded to prospects for renewed U.S.-Iran negotiations and a potential reopening of the Strait of Hormuz, but uncertainty over diplomatic progress has continued to affect oil and bond markets.
Consumer Inflation Expectations Rise
Fresh consumer data added another inflation signal on Friday. The University of Michigan’s final September survey showed year-ahead inflation expectations at 4.6%, up from 4% in August and the highest since June.
Long-term inflation expectations also edged higher to 3.4% from 3.3%, where they had remained for three consecutive months.
The university’s consumer sentiment index was finalized at 48.1, slightly above the preliminary reading of 47.8 but still reflecting historically weak consumer confidence.
Treasury Buybacks Fail to Reverse Yield Rise
The Treasury Department has continued its debt buyback program amid heightened volatility in longer-dated government securities. On Thursday, it repurchased about $4.08 billion of 20- and 30-year bonds, below the $6 billion it had indicated it planned to buy and well below the roughly $10.47 billion offered by investors.
The 30-year Treasury yield has also climbed sharply, reaching around 5.5%, its highest level in more than two decades.
The broader bond selloff reflects several pressures converging at once: resilient U.S. economic activity, elevated energy costs, persistent inflation concerns and increased government borrowing.
Interest-rate markets on Friday were assigning roughly a two-thirds probability of another 25-basis-point Federal Reserve increase in October, though those expectations can shift rapidly as new economic data arrive.
