Treasuries-U.S. yields ease from highs after data as crude prices eyed

Several Fed officials have indicated in recent days that they felt that a rate hike would be appropriate should inflation pressures continue. A closely watched part of the U.S. 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 40.9 basis points. Expectations for a hike of at least 25 basis points from the central bank at its September meeting stand at 64.2%, according to CME FedWatch, up from 36.6% a week ago. The 2-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, dipped 1 to 4.384% after climbing to 4.41%, its highest since January 2025. The Fed said in its latest "Beige Book" report that U.S. economic activity increased modestly, employment rose slightly and prices increased moderately in recent weeks. The breakeven rate on 5-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.366% after closing at 2.38% on Tuesday, its highest close since mid-June. The 10-year TIPS breakeven rate was last at 2.352%, indicating the market sees inflation averaging about 2.4% a year for the next decade. The yield on the benchmark U.S. 10-year Treasury note shed 0.2 basis point to 4.794% and was on track to snap its longest streak of daily gains since March. The yield hit an earlier high of 4.818%, its highest since November 1, 2023. The yield on the 30-year bond was unchanged at 5.267% after hitting a two-week high of 5.296%. Federal Reserve Bank of New York President John Williams said rising long-term bond yields aren’t driven by inflation fears but are instead a reflection of a solid economy, in comments that also said he was still collecting information to drive his next monetary policy decision. U.S. Treasury yields slipped from multi-year highs on Wednesday, with the benchmark 10-year yield on pace to snap a five-session streak of gains, as investors gauged the latest round of economic data and crude prices oscillated. After earlier falling about 1%, crude prices reversed course to advance more than 1%, as supply worries from the Iran war overshadowed earlier comments from U.S. Energy Secretary Chris Wright, who said that more than 17 million barrels of oil flowed through the Strait of Hormuz on Monday. On the economic front, the ADP National Employment Report showed private employment rose by 38,000 jobs last month, below the 48,000 increase expected by economists polled by Reuters, after an upwardly revised 46,000 in July. "Everyone likes to try and point to one thing or another, but you've just got a little basket of issues coming on," said Thomas Urano, co-chief investment officer at Sage Advisory in Austin, Texas. "We're in this situation now where policy becomes very difficult, and then you get data like today in the ADP number, which was a miss, showing a pretty slow pace of growth. And all of a sudden you've got a situation where inflation and employment are no longer reading from the same script, and then monetary policy gets really complicated when inflation and employment stop pointing in the same direction." Urano said that along with September historically being a difficult month for markets, the recent comments from Federal Reserve Chair Kevin Warsh on Friday, the continuation of the Iran war which has raised energy prices, and capital spending by AI companies potentially crowding out demand for Treasuries have served to push yields higher in recent days. The data was the latest release on the labor market this week after Tuesday's Job Openings and Labor Turnover Survey showed a slow but stable jobs market. Friday will bring the government's payrolls report, which will help shape views on the path of the Federal Reserve's interest rate policy. Other data from the Commerce Department showed factory orders rose 0.9% in July, above the 0.6% estimate, after a revised 0.2% drop in June, led by a bounce in demand for aircraft.

Treasuries-U.S. yields ease from highs after data as crude prices eyed

Fed officials and inflation gauges

Benchmark yields retreat from highs

Yields ease after data and crude swings

Labor and factory data shape rate expectations

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