Key facts
- US Treasury yields climbed on Thursday, with 10-year notes reaching their highest levels since late 2023.
- 30-year Treasury yields hit their highest levels since June 2007.
- 2-year Treasury yields reached their highest levels since July 2024.
- US producer price index (PPI) advanced 5.4% year-on-year in August, exceeding expectations.
- Energy prices increased 4.2% in August.
- Traders now see a 70% chance of a 25 basis point Fed rate hike on September 15-16.
U.S. Treasury yields climbed on Thursday, extending gains as a higher-than-expected inflation reading and surging oil prices bolstered expectations for a Federal Reserve interest rate hike. The yield on 10-year Treasury notes reached its highest level since late 2023 at 4.946%, up 10.93 basis points, while 30-year Treasury yields hit their highest since June 2007 at 5.3587%, up 7.27 basis points. The 2-year Treasury yield, closely tied to rate expectations, rose 13.33 basis points to 4.56%, its highest since July 2024.
Data released Thursday showed the U.S. producer price index (PPI) increased 5.4% in the 12 months through August, exceeding consensus forecasts of 5.3% and up from 4.8% in July. Energy prices contributed significantly, rising 4.2% in August after two months of declines. This inflation data prompted traders to price in a roughly 70% chance of a 25 basis point rate hike by the Fed at its September 15-16 meeting, up from 62% earlier.
Analysts noted that while the headline PPI met expectations, certain components feeding into the Fed's preferred inflation gauge, personal consumption expenditures (PCE), came in stronger than anticipated. Rising prices in segments like airfares and hospital care, along with upward revisions to July's data, contributed to the inflationary perception. Elevated oil prices, which rallied about 6% with benchmarks trading over $100 a barrel amid concerns about supply disruptions from increased attacks on shipping, further amplified inflation worries.
Despite a successful auction of $22 billion in 30-year bonds that saw strong demand, with a bid-to-cover ratio of 2.61 times, yields pared gains only briefly before extending their rally. The European Central Bank also raised interest rates by 25 basis points, its second hike this year, to combat inflation driven by higher energy costs.