10-year Treasury yield not far from 5% after Powell’s prepared remarks

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Long-dated Treasury yields remained higher on Thursday, with the 10- and 30-year rates on their way to more 16-year highs, as traders assessed prepared remarks from Federal Reserve Chair Jerome Powell.

What’s happening

  • The yield on the 2-year Treasury
    BX:TMUBMUSD02Y
    fell 4.4 basis points to 5.174% from 5.218% on Wednesday. Wednesday’s level was the highest close since July 5, 2006, based on 3 p.m. Eastern time figures from Dow Jones Market Data.

  • The yield on the 10-year Treasury
    BX:TMUBMUSD10Y
    rose 1.6 basis points to 4.918% from 4.902% Wednesday afternoon. Wednesday’s level was the highest close since July 25, 2007.

  • The yield on the 30-year Treasury
    BX:TMUBMUSD30Y
    advanced 3.4 basis points to 5.027% from 4.993% late Wednesday. Wednesday’s level was the highest close since Aug. 17, 2007.

What’s driving markets

The 10-year Treasury yield traded just below 5% — its highest since the summer of 2007 — as investors continued to sell long-dated U.S. government debt on fears that robust economic data could encourage the Federal Reserve to keep interest rates higher for longer as it battles inflation.

Data released on Thursday showed that initial jobless claims fell to a nine-month low of 198,000 last week, defying expectations for rising layoffs amid higher U.S. interest rates. New jobless claims declined from a revised 211,000 in the prior week. Meanwhile, the Philadelphia Fed’s manufacturing gauge remained in contractionary territory for the second straight month in October.

In prepared remarks for delivery on Thursday, Powell said that the central bank is “attentive” to the recent economic data that shows resilient economic growth and demand for labor, and more hikes may be needed if that trend continues.

Meanwhile, there are concerns that some important buyers of Washington’s debt are pulling back. Chinese investors sold U.S. assets at the fastest pace in four years in August, according to official Treasury Department data released Wednesday evening.

Markets priced in a 98% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Nov. 1, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% by December was seen at 35.8%.

What analysts are saying

Ten-year yields “are at the precipice of a 5-handle,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery. “Regardless of how long 5% 10-year yields persist, we’re left to ponder how long higher yields can be absorbed by U.S. stocks…10-year yields spiking above 5% might be long overdue for some market participants, but perhaps not a welcome development for equity investors.”

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