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Bond Report: Treasury yields carve out fresh multi-year highs, post weekly gains after September’s hot CPI data

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Treasury yields reversed course and moved higher on Friday, led by a 30-basis-point jump in the 1-year rate.

What’s happening

The yield on the 2-year Treasury
TMUBMUSD02Y,
4.515%

rose to 4.511% from 4.449% on Thursday. Thursday’s level was the highest since Aug. 9, 2007, based on 3 p.m. data, according to Dow Jones Market Data.

The yield on the 10-year Treasury
TMUBMUSD10Y,
4.016%

advanced to 4.018% from 3.952% on Thursday.

The yield on the 30-year Treasury
TMUBMUSD30Y,
3.981%

climbed to 3.989% from 3.933% on Thursday. Thursday’s yield was the highest since Jan. 3, 2014.

What’s driving markets

Yields headed higher Friday afternoon after reversing declines from earlier in the session, as traders factored in a greater possibility that Federal Reserve officials will raise its benchmark interest rate above 5% in 2023. Friday’s rise in yields was led by the 1-year rate, which soared above 4.5% and is sensitive to expectations around the path of Fed policy.

Data released on Friday showed that U.S. retail sales fell flat in September as high inflation and rising interest rates took a bite out of consumers’ willingness to spend. Sales at retailers had been forecast to rise 0.3% last month, according to economists polled by The Wall Street Journal.

U.S. consumer sentiment increased slightly in October, but Americans’ expectations for inflation worsened.

Also on Friday, Kansas City Fed President Esther George backed further rate hikes, but said the central bank needs to be careful about the pace of those moves.

Traders and investors continued to react to Thursday’s U.S. consumer-price index — which contained a year-over-year headline rate of 8.2%, along with a hotter-than-expected monthly core reading of 0.6%, and secured the likelihood of another 75 basis point rate hike by the Fed in November.

What strategists are saying

Thursday’s CPI print “did nothing to change the stance by the Fed in the short term. A 75bps hike in November is all but a sure thing, and anyone wishing for something short of that is sure to be disappointed,” said Johan Grahn, vice president and head of ETF strategy at AllianzIM, which oversees $19.5 billion in assets.

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