(Bloomberg) — The US 30-year yield rose to the highest level since 2007, deepening a bond selloff driven by expectations the Federal Reserve will keep interest rates elevated as the supply of Treasury debt grows. Shorter-term yields also reached new highs.
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The 30-year Treasury yield rose as much as 8 basis points to 4.869%, exceeding its 2010 high of 4.8559%. Shorter-maturity Treasury yields had previously reached the highest levels since at least 2007, and extended their climb Tuesday.
While supported by expectations that the Fed may raise rates again — a prospect endorsed by Loretta Mester, president of the central bank’s Cleveland branch in comments last night — and by the removal of the threat of an imminent federal government shutdown, the magnitude of the selloff continues to flummox experts.
It’s broadly indicative of investors scrapping bullish bets, JPMorgan Chase & Co. strategist Jay Barry said in a note late yesterday.
“We have been concerned that the position and hedging technicals could be an ongoing negative for Treasuries,” Barry wrote.
The rise in nominal yields has coincided with an increase in inflation-adjusted yields. The 10-year real yield approached 2.4% Tuesday, extending a climb from below 2% over the past month. The 30-year real yield rose to 2.46%, up 7.6 basis points.
“Real yields on the long end just have further to go — the pace of inflation falling is not satisfactory enough for the market, and the Fed’s framework for getting inflation lower is to slow the economy, and that’s not exactly happening to the market’s satisfaction,” said John Brady, managing director at RJ O’Brien.
Traders will be focused on JOLTS job openings data for August due at 10 a.m. New York time for the latest read on hiring trends. The measure has been a point of focus for Fed officials this year.
A print in line with economists’ median estimate of 8.815 million job openings would mark a continued decline from last year’s peak, but Brady noted that it would still surpass the previous cycle high in 2018.
–With assistance from Rachel Evans.
(Adds additional market data and context beginning in sixth paragraph)
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