Treasury Yields Surge to Highest Level Since July

Key Takeaways

• The 10-Year Treasury yield rose 11 basis points to 4.19% on Wednesday, hitting its highest level in nearly three months as markets reassess their expectations for interest rates.
• There was no obvious catalyst for Monday’s rise, but yields have been trending upward ever since the Federal Reserve cut interest rates for the first time in more than 4 years last month.
• Wall Street has dramatically curbed its expectations for upcoming rate cuts by the Fed.

Treasury yields climbed by the most in weeks on Monday as markets continued to recalibrate their interest rate expectations while assessing the likelihood of a soft landing for the U.S. economy.  

The 10-year Treasury yield was at 4.19% Monday afternoon, its highest level since late July. The 11 basis-point, or 0.11 percentage-point, increase was its biggest intraday rise since Oct. 4 when a stronger-than-expected jobs report assuaged Wall Street’s recession fears. 

There was no obvious catalyst for Monday’s rise, but yields have been trending upward ever since the Federal Reserve cut interest rates for the first time in more than 4 years last month.

Data Has Supported the Idea Fed Can Move Slowly

The Fed went big in September, slashing its benchmark rate by 50 basis points amid a concerning uptick in the unemployment rate.

The decision was a controversial one in some corners. Fed Governor Michelle Bowman favored a smaller cut, becoming the first Fed governor to dissent from a rate decision since 2005.

In the weeks since, economic data—including September’s inflation data—has generally provided positive surprises, supporting Bowman’s view that the Fed can take it slow and steady as it returns the federal funds rate to a neutral level. That data has also supported the stock market, which has risen to record after record in recent weeks.

Market Has Scaled Back Rate Cut Expectations

Wall Street has dramatically curbed its expectations for upcoming rate cuts. On Monday, there was a 64% chance the Fed would cut rates by a total of 50 basis points over its next two meetings, according to federal funds futures trading data.

Markets see no chance of bigger cuts. The inverse was true a month ago; then, Wall Street saw no chance that the Fed would cut its key rate by less than 50 basis points over the last two meetings of 2024. 

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