US 30-Year Treasury Yield Tops 5.5%, Highest Since 2004

Yields on long-dated US government debt pushed to fresh multiyear highs on Friday, capping a punishing week for the Treasury market after a closely watched gauge of consumer sentiment came in stronger than economists had expected.

The 30-year Treasury yield climbed as much as five basis points to 5.53%, extending a peak last touched in 2004. It had traded below 5% as recently as early July. The 10-year note's yield also set a new multiyear high, rising past 5.22%.

"There's no real technical levels for people to hang on to, and it leaves things in a bit of a vacuum," said Izaac Brook, US rates strategist at RBC Capital Markets. "That allows yields to just keep drifting higher and higher."

The move was notable for its divergence from shorter maturities, which are more sensitive to shifting expectations for Federal Reserve rate increases aimed at containing inflation. By Friday afternoon in New York, the 30-year yield sat just above 5.50%, about three basis points higher on the day, while the two-year yield was roughly seven basis points lower.

"There's too much priced in the front end," said Monty Gandhi, rates strategist at SMBC Group. "Short-term investors are looking to buy the front end thinking that any more bearishness should flow into the belly or a higher-for-longer expression."

Short-term yields had reached multiyear highs earlier in the week on expectations that the September Fed increase — the first since 2023 — would be followed by more, with the US war in the Middle East underpinning energy prices.

Oil Prices

Friday's rise in long-term yields ran counter to a decline in oil prices, which have been a dominant driver of day-to-day moves in Treasuries during the war-related supply shock. US benchmark West Texas Intermediate crude futures settled down 2.3% at $92.41.

"With rate hikes now being delivered in direct response to higher energy prices, there is no clear near-term upper bound on hikes that can be priced in by the market," Citigroup economist Andrew Hollenhorst said in a report.

Interest-rate strategists at Morgan Stanley raised their Treasury yield forecasts, citing the firm's recently revised outlook for additional Fed tightening and noting that market pricing of the Fed's path accounts for most of the movement in 10-year yields.

The climb in yields reflects both the risk that costlier energy keeps broader inflation measures elevated and signs that the US economy and companies are absorbing higher interest rates without major strain. The University of Michigan's consumer sentiment gauge, released Friday, fell to a four-month low in September but held up better than economists had anticipated.

Yield Curve

Friday's moves widened the gaps between short- and long-term yields, with key segments such as the two- to 10-year and five- to 30-year spreads rebounding from their lowest levels in more than a year, reached earlier in the week when short-term yields rose more sharply.

Activity in Treasury futures was consistent with traders taking profits on those wagers. A pair of block trades involving the five-year note and Ultra Bond futures contracts, executed simultaneously shortly before 10 a.m. New York time, were done at price levels suggesting the five-year was bought and the Ultra Bond was sold.