Treasury Yields Hit 19-Year High on Divided Fed Hold
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- U.S. Treasury yields climbed sharply Thursday, with the 30-year bond rising more than 9 basis points to 5.236% — its highest level since July 2007 — while the benchmark 10-year yield soared over 8 basis points to 4.7% and the 2-year note gained 5 basis points to 4.289%.
- The Federal Reserve voted 9-3 on Wednesday to hold its key interest rate steady at 3.5%-3.75%, marking the second FOMC meeting under Chairman Kevin Warsh.
- The FOMC statement said "economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East," and noted job gains have kept pace with the workforce.
- Deutsche Bank analysts said they still expect the Fed to raise rates by 50 basis points this year — 25 bps in September and 25 bps in December — and warned the FOMC is "unlikely to take much comfort in yesterday's market reaction."
- Deutsche Bank noted the rise in long-end yields coupled with declining forward real yields is "suggesting doubts about an imminent return of price stability," and warned a steeper yield curve could pressure the weak housing market.
- Investors are awaiting Thursday's weekly jobless claims and the June personal consumption expenditures price index reading, with Dow Jones estimates projecting 3.7% headline inflation and 3.3% core inflation annually.
Why it matters: Three FOMC dissents favoring hikes and a 30-year yield back at 5.236% show the bond market isn't buying the Fed's patience on inflation, with Deutsche Bank still forecasting 50 bps more tightening in 2026 — a steeper curve now threatens to squeeze the housing market further and raises the cost of the federal government's long-term borrowing.
