The 10-year US Treasury yield rose to its highest level in more than two decades on September 30 after new data showed that the US economy grew faster than expected in the second quarter.
The yield, which is closely monitored because it affects borrowing costs throughout the economy, climbed to 5.304% during afternoon trading. It surpassed the previous intraday peak of 5.303% set in 2007, marking its highest level since May 2002, according to WSJ.
The rise in Treasury yields came as investors assessed stronger economic growth and still-high inflation. At the same time, markets continued to watch the impact of the war in the Middle East on the US economy.
US economy grows 2.2% in second quarter
The US Commerce Department revised its estimate for second-quarter economic growth to 2.2%, up from its earlier estimate of 1.5%.
At the same time, the Federal Reserve’s preferred inflation measure remained high. The gauge rose at an annual rate of 3.4% in August, matching the revised rate for July.
The latest figures showed that the US economy remains resilient even as it continues to deal with high prices and the effects of the Middle East conflict. The data also came as investors reduced their expectations of an interest-rate hike by the Federal Reserve in October. Markets were pricing in only about a 37% chance of a rate increase.
Fed rate hike bets fall
Expectations for an October rate hike had already fallen on September 29 after a Fed official said the central bank was not in a hurry to raise interest rates.
That comment briefly eased pressure on the Treasury market. Treasury prices and yields generally move in opposite directions, meaning a fall in bond prices pushes yields higher.
Despite that temporary relief, the 10-year Treasury yield ended the quarter with a sharp rise.
The benchmark yield gained nearly 0.9 percentage points during the quarter, marking its biggest quarterly increase since 1994.
Stocks end mixed as yields rise
The Dow Jones Industrial Average fell 0.9%, while the S&P 500 dropped 0.3%. The Nasdaq Composite, however, edged up 0.2%.
The moves came as investors balanced stronger-than-expected economic growth against continued inflation concerns and uncertainty linked to the Middle East conflict.
Oil prices rise again
Oil prices also moved higher after easing in recent days as crude exports from the Middle East picked up.
Front-month Brent crude rose 0.9% to $103.53 a barrel.
The rise in oil prices remains another factor for investors to watch because higher energy costs can add to inflation pressures.
Inflation slows more than expected
The personal consumption expenditures (PCE) price index rose 3.4% in August from a year earlier, down from 3.7% in July.
Economists surveyed by Dow Jones had expected inflation to remain at 3.7%.
The core PCE index, which excludes food and energy prices, also showed some improvement. It rose 3% year on year in August, down from 3.3% in July and below economists’ expectations.
However, the latest inflation numbers did not completely ease concerns about interest rates, as investors also looked at stronger economic and jobs data.
Investors turn to jobs data
The market’s focus is now shifting to the US jobs report due on Friday.
Non-farm payrolls are expected to have increased by 84,000 in September. That would be about half the number of jobs added in August on a seasonally adjusted basis.
Meanwhile, private-sector hiring data released Wednesday was stronger than expected. ADP said private employers added 90,000 jobs in September, compared with economists’ forecast of 68,000.
The stronger jobs data added to the debate over what the Federal Reserve may do with interest rates.
Expectations of a Federal Reserve rate hike next month fell on Wednesday. The CME Group’s FedWatch tool showed traders were pricing in a 35% chance of a quarter-point rate hike in October, down from about 51% a day earlier.
However, traders still expect another rate increase in December despite the softer inflation numbers.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Readers are advised to consult a financial advisor before making any investment decisions.