The US 10-year Treasury yield surged above 5.30% on Wednesday, reaching its highest level in 24 years as resilient economic data, energy-driven inflation concerns and rising fiscal debt weighed on the bond market.
The benchmark yield climbed as high as 5.31%, up 5 basis points in afternoon trading, reaching levels last seen in spring 2002.
The move also took the yield above its previous peak from 2007.
The 10-year yield has risen about 55 basis points this month and is 138 basis points above its March 2026 low.
Treasury yields climb across the curve
The rise in the benchmark yield came alongside gains across the broader Treasury curve.
The two-year Treasury yield rose 2 basis points to 4.89%, while the five-year yield gained 4 basis points to 5.10%. The 30-year yield climbed 8 basis points to 5.65%.
The longer-dated yields rose more sharply than short-term rates, reflecting continued pressure on the longer end of the Treasury market.
Meanwhile, market expectations for another Federal Reserve interest rate increase at the Oct. 28-29 Federal Open Market Committee meeting fell after the latest inflation data.
The shift came after the Commerce Department reported that the personal consumption expenditures price index rose 0.3% in August.
The annual increase was 3.4%, below the 3.7% economists surveyed by Dow Jones had expected.
Core PCE, which excludes food and energy prices, rose 0.2% in August, taking the annual increase to 3%. Economists had expected monthly and annual increases of 0.3% and 3.3%, respectively.
Softer PCE changes rate-hike expectations
The softer inflation figures prompted traders to reduce expectations for an October rate hike.
At one point this month, markets had priced in more than an 80% chance of a quarter-point increase in October.
Those odds fell to around 37% following Wednesday’s PCE report, according to CME Group’s FedWatch tool, with traders shifting expectations for the next increase towards December.
Tom Graff, Chief Investment Officer of financial advisory firm Facet, told Invezz that “At least one more rate hike from the Fed remains nearly inevitable, even after Core PCE came in cooler than expected, since inflation is still well above the Fed’s 2% target. The softer reading is welcome, but the rest of the report gives the Fed reason for caution.”
Although the Federal Reserve officially targets headline PCE, officials generally view the core measure as a better gauge of longer-term inflation trends.
Jobs data could shape next move
Treasury yields initially moved lower after the inflation report before turning higher as investors shifted their focus to the September US jobs report, due Friday.
Economists expect the US economy to have added 84,000 jobs during the month.
A stronger-than-expected report could put renewed upward pressure on Treasury yields, particularly after Wednesday’s ADP private payrolls report also came in stronger than expected.
The latest moves in the bond market therefore reflect a divergence between softer inflation data, which reduced near-term expectations for Fed tightening, and continued concerns over economic resilience and longer-term fiscal and inflation pressures.
With the 10-year yield already at levels not seen since 2002, Friday’s employment data could provide another test for market expectations around the Fed’s next policy move.
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