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Bond Report: 10- and 30-year Treasury yields post their longest winning streak in months amid growing inflation fears

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A selloff of longer-term U.S. government debt resumed on Wednesday, sending the 10- and 30-year Treasury yields to their highest levels since June.

Long-end yields are experiencing their longest streak of rises in months, propelled by renewed investor concerns about inflation. Meanwhile, Wednesday’s bond moves were accompanied by a rise in the U.S. Dollar Index
DXY,
+0.67%
,
which hit its highest level in about a year as currency traders reacted to the Federal Reserve’s policy update from last week.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.528%

    rose 0.6 basis points to 1.540%, up from 1.534% at 3 p.m. Eastern on Tuesday. It’s the highest level since June 16, based on 3 p.m. levels, according to Dow Jones Market Data.
  • The 2-year Treasury note yield
    TMUBMUSD02Y,
    0.304%

    declined 0.8 basis points to 0.297% versus 0.305% Tuesday afternoon. It’s still the second-highest level for the yield this year.
  • The yield on the 30-year Treasury bond
    TMUBMUSD30Y,
    2.075%

    rose 1.9 basis points to 2.089%, compared with 2.07% on Tuesday. It’s the highest level since June 29.
  • The 10-year yield is up for seven consecutive trading days, the longest winning streak since Jan. 12. The 30-year yield is higher for five straight trading days, the longest streak since Aug. 12.
What’s driving the market?

Sellers of longer-term U.S. government debt returned on Wednesday afternoon, following a morning that was dominated by buying. The moves followed an inflation-fueled selloff on Tuesday that sent the 10-year rate above 1.5% and the 30-year above 2%.

Treasury yields have been rising since the middle of last week, when Federal Reserve policy makers indicated they could formally lay out a plan to begin tapering monthly bond purchases in November, and moved up their forecasts for subsequent interest-rate increases.

Investors have had a bit of a delayed reaction to the Federal Reserve’s policy update — with investors in equities and currencies slow to react to the notion of a central bank preparing to move away from easy policy settings. Factoring into investors’ thinking now is greater concern that inflation may prove to be persistent, following similar expressions of worry last week from the Bank of England and a number of European Central Bank policy makers.

On Wednesday, Fed Chairman Jerome Powell said that the bout of high U.S. inflation could be prolonged into early next year because parts and material shortages might be getting worse. Meanwhile, his colleague Patrick Harker, president of the Federal Reserve Bank of Philadelphia, suggested that the first U.S. rate hike may come late next year or early 2023.

In U.S. data releases on Wednesday, pending home sales unexpectedly surged by jumping 8.1% in August, far exceeding economists’ expectations.

In politics, the Democratic-run Senate is expected to vote as soon as Wednesday on legislation that would just avoid a partial government shutdown by keeping the federal government funded after Thursday.

What are analysts saying?
  • “Treasuries found a supporting bid overnight — an especially meaningful development in the wake of the recent selloff which has seen 10-year yields breach 1.55% on two occasions, marking the new peak for rates since mid-June,” strategists Ian Lyngen and Ben Jeffery at BMO Capital Markets wrote in a note Wednesday.
  • “Last week’s numerous central bank meetings across the world confirmed that the overall direction for global monetary policy is shifting in a more hawkish direction,” analysts at BCA Research said in a Wednesday note. “The main reason: growing fears that elevated inflation will persist for much longer than expected, even with global growth having lost some momentum.”

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