4 hrs ago
Oil Surge Pushes U.S. 30-Year Yields To 20-Year High
Oil prices went up after a missile attack raised fears that oil supplies could be disrupted.
More expensive oil can make many goods and services cost more, which increases inflation worries.
Investors then expected the Federal Reserve might raise interest rates again.
As a result, yields on U.S. government bonds rose sharply.
The 30-year bond yield reached its highest point since 2004.
Higher bond yields can make it more expensive for companies and people to borrow money.
They can also make bonds more attractive than stocks.
Stock markets were slightly weaker, although some analysts said the economy still appeared resilient.
Treasury auctions also showed only moderate or weak demand from investors.
U.S. 30-year Treasury yields rose to 5.4816%, their highest level since 2004.
The 10-year Treasury yield climbed to 5.196%, its highest since 2007, as oil prices increased about 3%.
Markets raised the probability of another Federal Reserve rate hike next month to 71%, up from about 53%.
Weak demand at recent Treasury auctions added to pressure on the bond market.
Higher yields weighed on stocks, although some analysts said financial conditions remained supportive of economic growth.
- Who
- Bond investors, the Federal Reserve, the U.S. Treasury, stock-market investors, and oil-market participants.
- What
- Rising oil prices helped push U.S. Treasury yields higher, with the 30-year yield reaching a more than 20-year high.
- Where
- U.S. financial markets, with related moves in European and currency markets.
- When
- Thursday, September 24.
- Why
- Investors responded to higher oil prices, renewed inflation concerns, expectations of further Federal Reserve rate increases, stronger economic data, fiscal concerns, and heavy bond issuance.
More Rate Hikes Needed
Financial Conditions Remain Supportive
Inflation and monetary policy
More Rate Hikes Needed
Two Federal Reserve policymakers said rates would likely need to rise again to curb unacceptably high inflation, while stronger prices-paid data and higher oil costs reinforced that view.
Financial Conditions Remain Supportive
Some analysts said the available data did not show that policy was restrictive and that financial conditions remained supportive of a resilient economy and stock market.
Effect of higher bond yields
More Rate Hikes Needed
Higher yields could weaken the stock rally by increasing borrowing costs and encouraging investors to move from stocks into bonds.
Financial Conditions Remain Supportive
Despite the rise in yields, analysts cited continued supportive financial conditions and said the economy and stock market could remain resilient.
Key facts
- 30-year Treasury yield
- 5.4816%, up 7.96 basis points and the highest since 2004.
- 10-year Treasury yield
- 5.196%, up 8.17 basis points and the highest since 2007.
- 2-year Treasury yield
- 4.92%, up 2.51 basis points.
- Oil prices
- Rose about 3% to a one-week high before retreating from session highs.
- Rate-hike expectations
- Fed funds futures priced in a 71% chance of a rate increase next month, compared with about 53% before Wednesday's data.
- Treasury auction demand
- Demand was described as mediocre for a $44 billion seven-year note auction, following weak demand for a $70 billion five-year sale.
- Stock-market performance
- The Dow fell 0.31%, while the S&P 500 and Nasdaq were roughly flat.
Quotes
Antonio Del Favero
Head of US rates strategy at Macro Hive
“The move higher in Treasury yields has likely been driven by a combination of rising Fed hike expectations, higher growth expectations, higher oil prices, fiscal concerns, and hyperscaler issuance. The sharp rise in rates this week was likely exacerbated by investor positioning amid a rapid resurgence of oil prices.”
livemint.com
“Nothing in the data suggests policy is currently restrictive”
livemint.com
Sources
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