US Treasury yields ease from 16-year highs after 30-year yields breach 5%
30-year yields rose above 5% overnight, as investors worried about the Federal Reserve holding rates higher for longer as it battles to bring down inflation.
Yields have surged as investors reprice the likelihood that the U.S. central bank will keep rates elevated and possibly raise them again if the economy continues to show resilience and price pressures remain above the Fed's 2% target.
Concerns over rising Treasury supply and oil prices are also weighing on the market.
As yields jump, investors are also focused on the likelihood that high rates will ultimately cause a recession, with many analysts forecasting weakness in the fourth quarter and into 2024.
“I think that the real reason the long end has been in a free fall is mainly because of the yield curve steepening trade, where the curve has a tendency to reprice an economic slowdown,” said Tom di Galoma, managing director and co-head of global rates trading at BTIG in New York.
The closely watched yield curve between two-year and 10-year notes reached minus 30 basis points on Wednesday, after inverting as far as minus 111 basis points in March and July.
It has been inverted since July 2022.
An inversion in this part of the curve is seen as forecasting an economic downturn, but typically the yield curve will move back into positive territory before a recession begins.
Benchmark 10-year notes reached 4.884% and 30-year yields hit 5.011%, both the highest levels since 2007, before falling back to 4.754% and 4.877%, respectively.
Interest rate-sensitive two-year yields were last at 5.102%. They are holding below the 5.202% level hit on Sept.
