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US 10-year Treasury auction clears at highest yield since 2007
The 10-year sale produced a 4.683% yield, reflecting inflation above the Fed target and widening budget deficits that keep long-dated yields elevated.
The US Treasury sold $42 billion of 10-year notes at a yield of 4.683%, the highest level for the benchmark security since 2007, drawing solid though slightly below-anticipated demand. Most Treasuries ended the day little changed, setting up attention for a 30-year auction on Thursday.
Inflation running above the Federal Reserve’s target and swelling budget deficits have contributed to elevated long-dated yields, according to market participants cited by LiveMint Markets. Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities, said it is still difficult for yields to fall amid large deficits, solid growth, and war and inflation pressures.
Earlier in the session, an in-line US consumer price index reading led traders to trim expectations that Fed officials would raise rates at the September meeting. Swap markets implied about a 40% chance of a move versus roughly 50% before the data, and the two-year yield, which is more sensitive to near-term policy expectations, was lower by less than two basis points at 4.2%.
LiveMint Markets also noted that the July consumer price index excluding food and energy rose 0.2% month over month and 2.5% year over year, the slowest pace since March 2021, while weaker-than-expected labor market evidence helped spark a late-last-week bond rally as rate-hike expectations were scaled back this year. Steve Ryder, senior fixed income portfolio manager at Aviva Investors, said the data keeps September hike expectations alive but offers little urgency for the Fed to act immediately, with policymakers likely to weigh the next CPI release and the labor market report before deciding on further tightening later in the year.