U.S. Treasury yields see shocking rise thanks to persisitent inflation

The finance industry just got a bit more interesting, and if you’re anything like me—someone who just loves knowing what is up the U.S. economy at all times—you’re going to want to pay attention. Treasury yields have decided to take a little hike, reaching levels we haven’t seen in the past couple of weeks. This is a reflection of the ongoing tug-of-war between stubborn inflation and the hope for easing interest rates. But before we jump into it, let me hit y’all with a bit of context.

On Monday, yields on US government debt decided they weren’t high enough and climbed to their highest peaks in two weeks. Specifically, we’re talking about the benchmark 10-year Treasury note yields which took a leap of 0.13 percentage points, landing at 4.32 percent.

Not to be left out, the yields on two-year Treasuries, which tend to be a bit more sensitive to the whims of interest rate policies, also saw a rise of 0.09 percentage points, reaching 4.71 percent. Now, for those keeping score, these jumps in yields are not just small hops. They’re significant enough to be ranked as 2024’s third and fifth largest increases for the two-year and 10-year bonds, respectively. And yes, there’s data to back this up, courtesy of LSEG.

The Inflation-Inspired Tango

But why the sudden interest in climbing heights? Well, it all boils down to the inflation dance—a dance that’s proving to be more of a marathon than a quick two-step. Recent data threw a spotlight on this persistent issue, showing that year-on-year US inflation hit 2.5 percent in February. This figure, derived from the headline personal consumption expenditure metric, is a key indicator for the folks at the Federal Reserve and showed a slight uptick from January’s numbers. Add to this mix, data revealing a jump in the ISM manufacturing index in March, and you’ve got yourself a recipe for market jitters.

This concoction of data led traders to reassess their expectations for the future of US interest rates. The crystal ball now predicts two or three quarter-point cuts by the end of the year, a step back from the five or six cuts envisioned at the start of 2024.

According to Gennadiy Goldberg, the brains behind US rates strategy at TD Securities, this shift in the wind can be attributed to the stronger-than-expected PCE spending print and the robust ISM figures. However, Goldberg also throws a curveball into the analysis, noting that trading volumes were thinner than usual due to the Easter holiday, which might have amplified the day’s movements.

The Effect

This upward trajectory in Treasury yields didn’t just make headlines in the bond market; it sent ripples across various financial sectors. The benchmark S&P 500 index, not one to be left out of any market movement, dipped by 0.3 percent. This downturn wasn’t a solo act, with 290 stocks taking a bow alongside it. Even the tech-heavy Nasdaq Composite felt the chill, marking a 0.1 percent decline. Meanwhile, European equity markets decided to sit this dance out, remaining closed and blissfully unaware of the drama unfolding across the pond.

In contrast, Asian stocks decided to buck the trend and kicked off the quarter on a high note. China’s CSI 300 and Hong Kong’s Hang Seng indices enjoyed a bit of a rally, buoyed by a rebound in China’s manufacturing activity. This glimpse of economic optimism added a splash of hope to the growth forecasts.

And then there’s the shiny allure of gold, which decided to steal the spotlight by hitting a fresh record high. Trading at $2,239.3 a troy ounce, gold’s price gleamed a bit brighter, reaching an intraday high of $2,265.49. Not to be overshadowed, Brent crude, the international benchmark for oil, had a 1 percent increase, touching the highest level since late October.