US 10-year yield flirts with 5pct as higher oil, rate hike worries swirl
SINGAPORE: US Treasuries fell on Friday, taking the yield on the benchmark 10-year note near the closely watched five per cent level as surging oil prices fanned inflation angst while traders ramped up wagers on a rate hike from the Federal Reserve next week.
Yields on US 10-year Treasury notes soared to within five per cent on Friday, hovering around the pivotal level that could make bonds more appealing compared to stocks. Surging oil prices fueled inflation concerns and heightened the chances of the Federal Reserve raising interest rates next week. The 10-year yields rose to 4.97 percent in early Asian hours, marking their highest levels since late 2023.
Similarly, 30-year Treasury yields hit their highest since 2007, sitting at 5.38 percent. The selloff in bonds affected global markets, with Japanese government bond yields also climbing across the curve. Padhraic Garvey, head of global rates and debt strategy at ING, warned that breaching five percent on the 10-year note could make bonds more competitive with equities, leading to a potential outflow of dollars from the stock market.
Higher Treasury yields would also impact mortgages, auto and consumer loans, and corporate and municipal borrowing. Garvey noted that a break above five percent on the 10-year yield would be a challenging hurdle for the market, but not an impossible one. The 10-year yields breached the five percent mark in October 2023 for the first time since 2007, reaching 5.021 percent, but only held above that level for a single day before falling back.
Brent crude futures rose by 1 percent to US$108.68 per barrel, anticipating a 13 percent weekly increase due to escalating attacks along key shipping routes in the Middle East, causing inflation worries. The August consumer price index report, released later on Friday, will be closely watched by investors to gauge the Federal Reserve's potential rate hike next week.
Traders now view a 72 percent probability of a rate hike, up from 49 percent a week earlier, according to the CME FedWatch tool. Fed managing director Vasu Menon stated that benign inflation data could complicate the Fed's decision, with a base case scenario pointing to a possible pause in rate hikes. The bond selloff deepened further after the US government announced a small buyback of US$5.2 billion worth of bonds, less than the US$6 billion cap and half the US$10.5 billion offered in the operation.
Written by urgent.news from New Straits Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
