The yield on the US 30-year bond went up to its highest level since November, joining the rest of the Treasury market in giving investors a return of at least 4% after more good news about the job market.
Thursday, yields across the Treasury market went up because the growth rate of unit labor costs for the fourth quarter was changed up. The yield on a 30-year bond went up as high as 9 basis points, to 4.045%, from a low point in 2023 of 3.5% in early February. It ended the day at around 4.03%.
While shorter-maturity yields have been spurred higher as traders raised forecasts for the peak Federal Reserve policy rate, longer-dated ones respond more to signs of sticky inflation. Wednesday, a measure of US manufacturer prices went up, which made people worry that an upcoming report on the services sector will also be strong and cause more people to sell.
“Another firm ISM services number on Friday will see higher yields across the curve,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “As a long-duration investor, we are in a tough environment, but we see the backup in yields as an opportunity.”
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Inflation in the euro area slowed less than expected in February, while the core measure of inflation jumped to a new record high. This caused Treasury yields and rates on European bonds to go up at the start of the session. The data made it more likely that the European Central Bank will have to raise interest rates on loans even more.
Friday, the move spread to the Asia-Pacific market, making yields go up in Australia and New Zealand. The US Treasury market has lost all of its January gains, which came after its worst year on record. Strong economic data from China has also made people more pessimistic. Wednesday was the first time since November that the yield on a 10-year note went above 4%, and on Thursday it went as high as 4.09%.
Shorter-term yields, which are more affected by the Fed’s eight rate hikes in the past year, have been above 4% for different amounts of time. Since September, the two-year yield has been above that level. On Thursday, it hit a high of 4.94%, which was the last time it was that high, in July 2007.
The two-year Treasury note or bond still has the highest yield, which shows that people think the Fed’s rate hikes are causing the economy to slow down. In line with this, swap contracts based on the dates of Fed meetings still give about a 50% chance that the central bank will lower its policy rate by a quarter point from its highest point by the end of the year.
On Feb. 1, the Fed raised its policy rate to a range of 4.5%–4.75%. Swaps that talk about the Fed’s September meeting show that traders think the central bank will raise rates to a peak of around 5.5%.
Now that long-term yields are back above 4%, some people on Wall Street say it’s a good time to buy more exposure because a hard landing for the economy is becoming more likely. The global head of rates strategy at TD Securities, Priya Misra, said she would “enter some more longs at 4%” in 10- and 30-year Treasuries, noting that TD started recommending this trade when yields went up to 3.8%.
Misra said on Thursday’s Bloomberg Television show that long-term yields of 4% will look “really cheap” once the Fed raises unemployment and makes a hard landing. She said that investors should still keep “some dry powder to keep adding” to their long-term investments because yields could go up to 4.25 percent in the near future.
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