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30-year Treasury yield hits highest since 2007 after Fed pause
Even as implied September hike odds fell to about 65%, the 30-year yield jumped to 5.235%, signaling a bear steepening tied to term premium rather than just Fed expectations.
Bond markets sent a different signal than the Federal Reserve after the central bank left policy rates unchanged at its July meeting, with the US 30-year Treasury yield climbing to 5.235%, the highest level since 2007. At the same time, the 10-year yield rose to 4.704%, while the 2-year yield, more closely linked to Fed policy expectations, ended at 4.281%, rising only modestly.
Action Forex notes that CME FedWatch showed the implied probability of a September rate increase falling to around 65% from about 76% just one day earlier. The divergence between falling near-term hike odds and rising long-end yields produced what it described as a textbook bear steepening.
According to Action Forex, the market appeared to consolidate around a single-hike outcome rather than fully abandoning the prospect of hikes. It also argues that if investors were simply pricing a higher likelihood of another hike, short-dated yields should have led the move and September odds should have risen.
Action Forex adds that the Fed’s policy statement closely mirrored June and provided limited forward guidance, with the committee describing economic activity as expanding at a solid pace despite Middle East uncertainty. In its readout, inflation was still described as elevated due to supply shocks including energy, while Chair Kevin Warsh characterized the stance as a period of watchful thin.