Longer-dated yields slip after Fed comments, still higher for the week

NEW YORK, Sept 8 – Longer-dated US Treasury yields declined on Friday, after comments from a host of Federal Reserve officials pointed toward a pause in the central bank’s rate hike cycle, but yields were still on track for a weekly gain.

Recent comments from Fed officials as a whole have indicated the central bank is content to keep rates steady at their next policy meeting on Sept. 19 to 20, but is not ready to declare the war on inflation is over. Investors will get another look at price pressures next week with the release of the consumer price index (CPI) on Wednesday.

“These yield levels have been really appealing to people, especially so at the front end of the curve but most people are long-term investors and they know in the back of their minds that high cash yield could turn out to be temporary and if they want to get a high yield locked in for the long term, you have to go further out,” said Robert Tipp, Chief Investment Strategist and Head of Global Bonds at PGIM Fixed Income in Newark, New Jersey.

“There is a higher degree of uncertainty about where things are going to go, but on balance I would say the fundamentals have been supportive of the idea of the Fed being at the end of the cycle, which one way or another supports the concept that you are going to be near a peak in rates.”

The yield on the benchmark US 10-year Treasury note on Friday shed 1 basis point at 4.256%. The 10-year yield is up about 9 basis points for the week, which would be its largest gain in about a month.

The yield on the 30-year Treasury bond fell 2 basis points to 4.332%.

Expectations for the Fed to keep rates steady at the next meeting stand at 93%, according to CME’s Fedwatch Tool, up from 92% one day ago.

Yields had moved sharply higher earlier in the week as a large influx of corporate supply sapped demand and stronger-than-expected economic data raised concerns the Fed could have room to continue hiking rates.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 72.4 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, rose 2 basis points to 4.978%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.312%, after closing at 2.283% on Thursday.

The 10-year TIPS breakeven rate was last at 2.335%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama and Josie Kao)