US yields hit multi-year peaks as markets fret over inflation and growth

US government bond yields are trading at elevated levels across the maturity spectrum. The 10-year note yield stands above 5.09%, while the 30-year bond yield is close to 5.39%. The key question for market participants is whether these yield levels can hold as investors weigh robust economic expansion against the threat of persistent inflation.

At the time of the yield reading:

• 2-year: 4.8952%. The last similar daily level was 4.92% on May 30, 2024.
• 5-year: 4.9828%. The last comparable daily reading was 5.01% on July 13, 2007.
• 10-year: 5.0913%. The last comparable daily reading was 5.11% on July 13, 2007.
• 30-year: 5.3891%. The last comparable historical reading was 5.42% on July 28, 2004.

The figures give the Federal Reserve little reason to ease up.

The flash S&P Global US composite PMI for today climbed to 58.4 from 56.0 in August, signaling stronger business activity. That follows an August jobs report showing payrolls increased by 162,000, far above the 56,000 projected in a Reuters poll. Inflation figures offered less comfort: August consumer prices rose 0.4% month over month and 3.4% from a year earlier. Gasoline increased 3.9% in August, while prices stripping out food and energy gained 0.3% on the month.

Fed remarks reflect that mixed picture. Richmond Fed President Tom Barkin said yesterday that inflation risks outweigh employment risks and cited the rebound in job gains and continued consumer spending in explaining last week’s rate hike. Put differently, policymakers see price pressures at a time when the economy has remained solid enough to withstand tighter policy.

Higher prices for oil, gasoline and diesel add another worry. Diesel fuels trucks and trains for moving goods and powers farm machinery. Rising fuel costs can feed into transportation, agriculture, food processing and distribution expenses. The extent to which businesses pass those costs to consumers will help determine whether the energy shock becomes a broader inflation issue.

Could policy offer some relief?

A possible counterweight to that inflation narrative exists. President Donald Trump has said he backs examining restrictions on US diesel exports, and Treasury Secretary Scott Bessent stated the administration is studying whether a full or partial ban would be workable. Louisiana Governor Jeff Landry has called for a 90-day ban, but the administration has not announced a ban or committed to that timeline.

Keeping more diesel at home could boost domestic supply in the short term. There is a complication, however: refiners and energy analysts caution that an export ban could cause refineries to reduce output and could push prices higher elsewhere. Traders will need to assess any announced measure by its impact on actual fuel supply and prices, not by the announcement alone.

The administration has also highlighted domestic energy production. Over time, more supply could help, but the more immediate factor for oil prices remains the disruption linked to Iran. Trump said yesterday that he believes a deal with Iran could come after the November midterm elections, possibly before. He also said the two countries had been talking. That leaves room for a diplomatic breakthrough, but no agreement is in place. It takes two to tango, and traders will want to see progress from both sides before pricing in a lasting reduction of the supply risk.

US equities feel the strain

At the time of the stock snapshot:

• Dow industrial average: 51,568.15, down 301.05 points, or roughly 0.58%
• S&P 500: 7,709.77, down 54.86 points, or 0.71%
• Nasdaq composite: 26,926.13, down 318.15 points, or 1.17%
• Russell 2000: 2,850.78, down 39.14 points, or 1.35%
• Nasdaq 100: 30,413.71, down 316.89 points, or 1.04%

Higher Treasury yields are boosting the dollar and adding pressure on stocks. If yields remain near their peaks, that pressure could persist. Relief from lower energy prices or a retreat in yields could shift the outlook, but traders need to see those moves materialize.

The wheels are all in motion with yields serving as the main catalyst for the USD and equities. The outlook is not encouraging with wars continuing and inflation showing little desire to ease. Meanwhile, the AI or, rather, SI (super intelligence) train keeps chugging along.

Stocks continue to slide with the Dow down -0.63%, S&P -0.81%, NASDAQ -1.25%, Russell 2000 -1.55% and NASDAQ 100 -0.412%.