Summary · why it matters
The yield on the 30-year U.S. Treasury bond surged to 5.440%, its highest level since 2004, or in 22 years, amid expectations of interest rate hikes by the U.S. Federal Reserve. Meanwhile, the 10-year Treasury yield, the main benchmark for setting rates on mortgages, auto loans and credit card debt, climbed to 5.133%, its highest since July 2007. The 2-year Treasury yield, which tends to move in line with the Fed's policy rate decisions, remained near its highest level since 2023. Investors are increasingly betting that the Fed will raise rates two more times this year, following the surge in oil prices and U.S. Treasury yields. Most recently, the CME Group's FedWatch Tool indicated that investors assign a 66.4% probability to the Fed raising rates by 0.25% to 4.00-4.25% at its October meeting, up from 55.4% a week earlier, and a 50.3% probability to another 0.25% increase to 4.25-4.50% at the December meeting, up from 41.7% a week earlier. The Fed's monetary policy committee, the FOMC, voted unanimously 12-0 to raise short-term rates by 0.25% to 3.75-4.00% at its September 16 meeting, in line with market expectations, marking the first increase in more than three years, or since July 2023. Since then, the Fed has cut rates six times, by a total of 1.75%. The Dot Plot report, which shows Fed officials' projections, indicated that 16 of 18 officials expect one more rate hike this year. West Texas Intermediate crude rose above 93 dollars a barrel today, while Brent crude surged past 105 dollars a barrel. Fed Governor Michael Barr said he expects the Fed will need to keep raising rates to control inflation, noting that the labor market and economic growth remain strong, but inflation is still above the Fed's 2% target and there is no clear sign it will return to target within a reasonable timeframe. He added that risks to achieving the inflation target have increased, while risks to the labor market have diminished. Barr made these remarks as S&P Global reported that the preliminary composite Purchasing Managers' Index for U.S. manufacturing and services rose to 58.4 in September, a 62-month high, from 56.0 in August. At the same time, price pressures increased significantly, reaching their highest level since October 2022.
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