10-year yields hit highest since April on inflation fears

NEW YORK – Benchmark 10-year yields hit a more than eight-month high on Wednesday on concerns that policies introduced by the Donald Trump administration could reignite inflation in addition to boosting growth, leading to fewer Federal Reserve rate cuts.

A CNN report that Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries added to concerns about rising price pressures on Wednesday.

“With the new administration coming in, there is some potential fear of that typical Q1 upturn in inflation,” said Michael Lorizio, head of US rates trading at Manulife Investment Management.

Under Trump, there are also considerable uncertainties over what policies exactly will be implemented by the new government and what economic impact they will have, which is making investors wary of buying longer-dated debt, said Lorizio.

“When the range of potential outcomes widens in the US economy that’s when duration really suffers and you begin to see some apprehension in terms of buying interest further out the curve.”

Interest rate-sensitive two-year note yields were last down 1 basis point on the day at 4.285%.

Benchmark 10-year yields rose 0.8 basis points to 4.693% and peaked at 4.73%, the highest since April 25.

The yield curve between two-year and 10-year notes steepened one basis point to 40.2 basis points and earlier reached 42.9 basis points, the steepest since May 2022.

Thirty-year Treasury yields rose 2.1 basis points to 4.933% and reached 4.968%, the highest since Nov. 2023.

Minutes from the Fed’s December meeting released on Wednesday showed that Fed officials agreed that inflation is likely to continue to slow this year, but also saw a rising risk that price pressures may remain sticky as policymakers began wrestling with the impact of policies expected from the incoming Trump administration.

Fed Governor Christopher Waller said on Wednesday that inflation should continue falling in 2025 and allow the US Federal Reserve to further reduce interest rates, though
at an uncertain pace.

Data on Wednesday showed that the number of Americans filing new applications for unemployment benefits unexpectedly fell last week.

The ADP National Employment Report showed that employers added 122,000 jobs last month.

The US government’s jobs report on Friday is expected to show that employers added 160,000 jobs in December.

The Treasury Department saw good demand for a USD 22 billion auction of 30-year bonds on Wednesday, the final sale of USD 119 billion in coupon-bearing debt issuance this week.

The bonds sold at a high yield of 4.913%, around a basis point below where they had traded before the sale. Demand was 2.52 times the amount of debt on offer, the highest since November.

The US government saw average interest for a USD 39 billion auction of 10-year notes on Tuesday and soft demand for a USD 58 billion sale of three-year notes on Monday.

(Reporting By Karen Brettell; Editing by Tomasz Janowski and Nick Zieminski)