Treasury Yields Near 5%; Bond Markets Under Pressure

Selling pressure in global bond and equity markets began to ease during Friday's trading (Sept. 11) after oil prices retreated from four-month highs. Nevertheless, the recent surge in energy prices has kept inflation concerns elevated, leading markets to price in the likelihood that central banks will maintain tight monetary policies for longer.

Oil price movements remain a key factor. Energy flows through the Strait of Hormuz remain constrained amidst the exchange of hostilities between the United States and Iran. However, oil prices began to correct following reports that Middle Eastern foreign ministers are discussing an interim agreement with Iran to ensure the smooth flow of shipping through this strategic waterway.

In the US bond market, the 10-year Treasury yield briefly touched 4.979%—a nearly three-year high—before easing to around 4.94%. The 30-year yield also hit 5.3836%, a 19-year high, while the 2-year yield rose to 4.5961%. These increases occurred as markets raised the probability of a Federal Reserve rate hike this month to approximately 67%.

Bond market pressure was further exacerbated by a US Treasury buyback program that fell short of the expected $6 billion. This situation has kept investors cautious regarding liquidity constraints and the trajectory of yields, particularly given the persistent inflation risks stemming from energy prices.

Market focus has now shifted to the release of the US Consumer Price Index (CPI) for August. Core CPI is projected to rise 0.2% month-over-month, though there remains a risk of a higher-than-expected reading, given that Producer Price Index (PPI) data has indicated persistent price pressures. The CPI result will be a key determinant of whether the Fed has sufficient grounds to raise interest rates at next week's meeting.

Newsmaker Analysis: Current market conditions indicate that the CPI is the pivotal factor driving the direction of the dollar, Treasury yields, and gold. If the CPI comes in hotter than expected, the probability of a Fed rate hike could rise, pushing yields and the US dollar higher while exerting renewed downward pressure on gold prices. Conversely, if inflation eases, pressure on yields could subside and expectations for interest rate hikes may decline, potentially allowing gold to regain recovery momentum. However, as long as oil prices remain high and the conflict in the Middle East persists, inflation risks will continue to limit gold's upside potential. (arl)

Source: Newsmaker.id