US 30-Year Treasury Yield Hits Multiyear High

The yield on the US 30-year Treasury bond climbed above 5.5% on 25 September, reaching a fresh multiyear high, the highest level since 2004. The move came after a US consumer sentiment reading was stronger than economists had expected.

The 30-year yield rose by as much as five basis points to 5.53%. It has climbed sharply from below 5% in early July. The yield on the benchmark 10-year Treasury note also reached a new multiyear high above 5.22%.

The latest rise extends a difficult week for the US bond market. Longer-term yields continued to increase even as yields on shorter-dated debt declined.

Markets Reassess the Federal Reserve's Rate Path

Investors now expect US interest rates to stay high for longer. This view has grown as higher energy prices could keep inflation high.

Short-term US Treasury yields had already reached their highest levels in several years earlier this week. The moves reflected expectations that the Federal Reserve's September rate increase could be followed by further tightening.

Longer-term yields, meanwhile, have been supported by signs that the US economy and businesses are continuing to cope with relatively high borrowing costs. The University of Michigan's consumer sentiment index fell to a four-month low in September, but the decline was smaller than economists had anticipated.

Oil prices also moved lower on Friday, despite energy costs being an important driver of recent Treasury-market moves. West Texas Intermediate (WTI) crude futures settled 2.3% lower at $92.41 a barrel.

Yield Curve Gaps Widen

The divergence between short- and long-term Treasury yields widened during Friday's session. The two-year yield fell by about seven basis points, while the 30-year yield remained above 5.5% in New York afternoon trading.

The movement pushed key parts of the Treasury yield curve away from the unusually narrow levels recorded earlier in the week. The spreads between two- and 10-year yields, as well as five- and 30-year yields, both widened.

Market activity also suggested that some traders were closing positions linked to earlier bets on Treasury yields. Strategists said the lack of clear technical resistance levels was leaving the longer end of the market without an obvious ceiling.

Morgan Stanley has also raised its Treasury-yield forecasts after revising its expectations for further Federal Reserve tightening. The firm said market expectations for the Fed's future policy path account for much of the recent move in 10-year yields.

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