The benchmark 10-year Treasury yield held near 5.169% on Friday after touching an intraday peak of 5.225%, its highest level since July 2007, as a six-week sell-off in U.S. government debt deepened. Traders now price a 70% chance of an October Fed rate hike, up from 50% a week earlier, as Chairman Kevin Warsh weighs how firmly to respond.
The 10-year Treasury yield held near 5.169% on Friday after touching an intraday peak of 5.225%, its highest level since July 2007. The move builds on Wednesday's rout, which marked the sharpest single-day yield jump since April of last year.
A six-week rout nears the 6% threshold
The 30-year Treasury yield rose to 5.465% after breaching 5.501% intraday, its highest level since June 2004. The benchmark 10-year yield advanced for a sixth consecutive week, marking its longest weekly losing streak since November 2024. Desks are now eyeing 6% on the 10-year note as the next threshold that could trigger forced liquidations across risk assets.
Meanwhile, the Treasury Department purchased $4.078 billion in 20-year and 30-year bonds out of $10.468 billion offered as part of its buyback program, but desks say the operation remains far too small to offset the fundamental duration liquidation driving yields higher.
Traders raise the odds of an October hike
Following a hawkish run of Fed commentary, CME FedWatch data shows traders now pricing a 70% probability of another quarter-point hike at the October meeting, up from 50% before this week's data. New York Fed President John Williams said Thursday it's reasonable to expect another hike by year end, while cautioning against locking into a pre-set path. Philadelphia Fed President Anna Paulson likewise signaled further tightening is likely but characterized the moves as modest.
Joseph Brusuelas, chief economist at RSM, argues the Fed is underestimating the scale of hikes still needed. According to CNBC: "The time of looking through the initial supply shock has come to an end," he said. Modeling at his firm found a 5.5% 10-year yield would lower growth to 1.5% and lift unemployment to 4.7% while core inflation remained stuck at 2.4%.
Warsh weighs a market-driven path
Not everyone agrees the Fed must move aggressively. Citigroup economist Andrew Hollenhorst said the rise in yields reflects the Fed setting higher policy rates rather than fears of runaway inflation. Still, Federal Reserve Chairman Kevin Warsh has emphasized letting markets help guide policy, a shift UBS economist Jonathan Pingle says leaves his framework rooted less in economic data and more in market narratives than prior chairs. Markets, for now, are betting Warsh lets the Treasury market keep pulling benchmark rates higher.
Sources: Investing.com, CNBC
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