Treasury yields hit 15-year highs after jobs data spark rates concern

Posted on October 21, 2022Comments Off on Treasury yields hit 15-year highs after jobs data spark rates concern

Treasury yields rose to their highest levels in a decade and a half on Friday, as strong US employment data fuelled expectations of further interest rate rises by the Federal Reserve.

Yields on the benchmark 10-year US Treasury climbed above 4.25 per cent for the first time since June 2008, rising as much as 0.05 percentage points to 4.272 per cent, according to Refinitiv data, while the price of the bonds fell. The two-year US Treasury yield climbed as much as 0.03 percentage points to a 15-year high of 4.639 per cent.

Those moves came after US labour market data on Thursday showed unemployment claims had fallen last week from 226,000 to 214,000, while economists polled by Reuters had expected a rise to 230,000.

Analysts said the robust job market reading would reinforce expectations that the Fed would continue with aggressive monetary policy tightening.

Economists at Citigroup led by Isfar Munir said US jobless claims “remain anchored to low levels and are indicative of a tight labour market”, adding that if next Friday’s quarterly reading for the US employment cost index confirmed stronger wage inflation, it would “keep the Fed firmly grounded in its hawkish stance”.

UK government bonds were similarly under pressure on Friday. The yield on the benchmark 10-year gilt rose 0.06 percentage points to 3.97 per cent, as traders grappled with the ramifications of UK prime minister Liz Truss’s resignation on Thursday and the prospect of a new leader for the country.

Despite Truss’s departure, analysts at ING said the new leadership contest could lead to further uncertainty over the government’s fiscal plans. As a result, “gilts should continue to trade with a risk premium”, they wrote.

The pound slipped 0.2 per cent to trade at $1.121 against the dollar.

Those downbeat moves also came as new data showed that UK retail sales fell more than expected in September, heightening concerns that the country was headed for a recession.

The quantity of goods bought in Britain shrunk by 1.4 per cent between August and September, following a sharp contraction in the previous month according to data from the Office for National Statistics. Economists polled by Reuters had anticipated a 0.5 per cent contraction.

In equity markets, Europe’s regional Stoxx 600 dropped 0.8 per cent and Hong Kong’s Hang Seng was flat. Futures contracts tracking Wall Street’s S&P 500 were subdued in early London trading.

Elsewhere in markets, the dollar was down 0.1 per cent against a basket of six peers. The Japanese yen continued to trade above ¥150 against the dollar after sliding through this level in the previous session for the first time since 1990, falling 0.2 per cent to a new low of ¥150.46.

The yen’s tumble of more than 20 per cent against the greenback this year reflects a widening gulf between the Bank of Japan’s ultra-loose monetary policy and the tightening trend of most other global central banks.

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