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Bond Report: 10-year Treasury yield ticks up to 14-year high

Treasury yields edged higher on Monday, reversing an initial retreat that came as the U.K. attempted to move past recent bond-market turmoil, while traders turned their focus back to the U.S. central bank’s efforts to contain inflation.

What yields are doing

The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.491%

rose 0.9 basis point to close at 4.498% based on 3 p.m. Eastern levels. Yields and debt prices move opposite each other.

The 10-year Treasury note yield
TMUBMUSD10Y,
4.247%

rose 1.9 basis points to 4.231%, its highest since June 16, 2008.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
4.384%

rose 5.7 basis points to 4.36%, its highest since July 7, 2011.

What’s driving yields

Rishi Sunak is set to become the next U.K. prime minister after his last competitor, Penny Mordaunt, withdrew. He will succeed Liz Truss, who resigned after just 44 days in office last week after her proposed program of tax cuts and energy subsidies sent the U.K. bond market into a sharp selloff that required the intervention of the Bank of England.

The latest U.K. developments were seen as reducing the likelihood of any further turmoil spilling into U.S. markets, allowing traders to turn their attention back to the Federal Reserve’s final two policy decisions of the year and a fed-funds rate target that’s marching closer to 5%.

Traders have scaled back the probability of another 75-basis-point hike in December, though, after The Wall Street Journal reported that policy makers are likely to debate the size of that month’s rate increase during their November meeting. A 75-basis-point in November is seen as all but a done deal.

In data released on Monday, S&P’s flash U.S. manufacturing purchasing managers index rose to 50.7 in October from 50.6 the prior month, while the services reading fell to 46.6 from 49.3. A key reading on inflation, the personal-consumption expenditures price index, is due on Friday.

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What analysts say

“The bearish repricing that has brought most of the major Treasury benchmarks to [around] 4.50% will be challenged in the coming days as investors contemplate whether this is the dip to buy,” wrote Ian Lyngen and Benjamin Jeffery, rates strategists at BMO Capital Markets, in a note.

“To be fair, it hasn’t been a year in which attempting to lock in higher yields on each incremental backup in rates has been fulfilling. In fact, since closing 2021 at 1.51%, 10-year yields have increased by nearly 300 bp (basis points) as inflation has proven to be far more stubborn than initially anticipated,” they wrote.

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