December 9, 2023

U.S. Treasury yields continued their march higher Thursday, reaching multiyear highs, as investors digested the Federal Reserve’s interest rate decision and forward guidance along with new unemployment data.

The yield on the 10-year Treasury was up by around 15 basis points at 4.492%, hitting a fresh 2007 high in the session. The 2-year Treasury was more than 2 basis points higher to 5.142%, hovering around levels last reached in 2006.

Yields on the 5-year note and 30-year bond also touched their highest levels since 2007 and 2011, respectively.

Yields and prices have an inverted relationship, and one basis point equals 0.01%.

Treasury yields reached their highs of the day after the release of new U.S. unemployment data. Initial jobless claims came in at 201,000, well below a Dow Jones forecast of 225,000. It was also the lowest level since January.

Traders seemed to interpret the data as a sign the Fed may need to tighten policy further to tame inflation.

Investors were also rattled after House Republican leaders sent the chamber into recess on Thursday, upping fears that federal lawmakers won’t pass a bill to avert a government shutdown. Market participants are concerned that a shutdown would hurt fourth-quarter GDP.

More rate hikes coming?

The Fed announced its decision to keep rates unchanged as its September meeting concluded on Wednesday, in keeping with investor expectations.

However, policymakers also suggested that they are expecting one more rate hike to come this year and rates to stay higher for longer, with just two rate cuts forecast for 2024. In June, the Fed said it was anticipating four rate cuts next year.

In a press conference after the announcement, Fed Chair Jerome Powell said the central bank was in a position where it could “proceed carefully” with its monetary policy. Policymakers would, however, like to see more progress in the fight against inflation, even though pressures have somewhat eased, Powell indicated.

The Fed also released its projections for several key economic indicators on Wednesday, saying it expects the gross domestic product to increase by 2.1% this year, which is far higher than previous forecast.

Meanwhile, the core personal consumption expenditures price index, which is used to track the inflation rate, is now expected to come in at 3.7%, lower than predicted in June.

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