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US Treasury Yields Rise on Fresh Signs of Inflationary Pressure

Published 2023-09-11, 10:25 a/m

US Treasury yields rose again as the ISM Services PMI increased from 52.7 to 54.5 in August, exceeding the market's anticipated figure of 52.5. Fed policymakers consider the services sector crucial in reducing inflation to their target of 2%.

Benchmark 10-year Treasury yield gained 8 basis points to 4.26%, hitting 2007 levels. Meanwhile, the two-year yields ended at 4.98%, a rise of 10 basis points, pushing the greenback higher with a gain of 0.89% week-over-week.

Next week will be decisive for defining the Federal Reserve's short-term perspective on interest rates. The U.S. central bank faces the challenging task of managing the containment of inflation and economic cooling measures while avoiding plunging the economy into a recession.

In Europe, Treasury yields moved higher too - the German 10-year Bund at 2.61% (+6 basis points) while the yield on the French 10-year OAT rose back to 3.14% (+7 basis points).

Against this backdrop, the uptick in Treasury yields put corporate IG bonds under pressure. In Europe, the IBOXX € Liquid Corporates index edged down 0.34%. In the US, the IBOXX $ Domestic Corporates index lost 0.67%.

By contrast, high-yield bonds added 0.29% in Europe (IBOXX € Liquid High Yield Index) but slid 0.39% in the US (Markit iBoxx USD Liquid High Yield Capped Index).

Lastly, emerging debt in local currencies took a nosedive, down 1.85% as the dollar index surged to fresh highs above the 105 level (+0.89% over the week).

 

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