The 30-year Yield Has Risen Back Above 5% as Traders Await This Week's U.S GDP and Inflation Data

Amidst an aggressive selloff on Wednesday morning, the majority of Treasury yields experienced notable movements, with investors eagerly anticipating forthcoming U.S. economic growth and inflation data.

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Specifically, the yield on the 2-year Treasury, represented by BX:TMUBMUSD02Y, declined by 1.6 basis points, falling from 5.103% on Tuesday to 5.087%. In contrast, the yield on the 10-year Treasury, BX:TMUBMUSD10Y, increased by 6.7 basis points, rising from 4.840% in the prior Tuesday afternoon to 4.907%. The yield on the 30-year Treasury, BX:TMUBMUSD30Y, surged by 8.4 basis points to reach 5.047% from its late Tuesday rate of 4.963%, even touching an intraday high of 5.063% on Wednesday. Notably, the last time the 30-year rate concluded a New York session above 5% was last Friday.

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The primary driving force behind these market shifts is the anticipation of key U.S. data releases this week, which have the potential to shed more light on the economy's strength and influence the Federal Reserve's considerations ahead of its policy meeting scheduled for October 31 to November 1.

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A notable event on the horizon is the release of third-quarter GDP data on Thursday, followed by the unveiling of the Fed's preferred inflation measure, the PCE index, on Friday. It's worth noting that there's a chance the U.S. economy expanded by 5% in the third quarter, defying expectations of a widespread slowdown. Additionally, economists surveyed by The Wall Street Journal are projecting core PCE readings of 0.3% for September and 3.7% on a year-over-year basis.

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In parallel, data released on Wednesday indicated that new home sales in September increased to a rate of 759,000 annually, surpassing expectations, and the August figure was revised slightly upward.

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Furthermore, Will Compernolle, a macro strategist at FHN Financial in New York, pointed to various factors contributing to the selloff in long-dated maturities on Wednesday, including the abundance of Treasurys, persistent inflation, and the potential for a higher neutral fed funds rate.

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Market sentiment currently reflects a 99.2% likelihood that the Fed will maintain interest rates within the range of 5.25% to 5.5% on November 1, as indicated by the CME FedWatch Tool. The probability of a 25-basis-point rate increase to a range of 5.5% to 5.75% at the subsequent meeting in December stands at 29.6%, a decline from the 36.9% probability observed a year ago.

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In sum, the prevailing market volatility has left many questions regarding monetary policy as the Federal Reserve's next policy decision on November 1 approaches. Although the consensus among market participants is that the Fed will maintain its current stance, Federal Reserve Chair Powell has emphasized the possibility of further rate hikes if inflation concerns persist. Consequently, the focus is now directed toward this week's PCE report, set to be released on Friday, according to economists Lindsey Piegza and Lauren Henderson of Stifel, Nicolaus & Co.

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