Yield on 10-Year Treasury Note Touches 18-Year High as Inflation Indicators Mount

Are you a high-yield bond? Because you’ve caught my interest. That line will get you thrown out of a bar, but you’d have been a hit at the US government’s monthly auction of 10-year notes on Tuesday, which at 4.68% landed the highest yield for newly auctioned securities since 2007.

The overall yield on the US 10-Year Treasury Bond also touched its highest intraday point, 4.699%, since last spring. That’s thanks to an extended selloff emboldened by new economic data suggesting more interest rate cuts are less likely in the short term thanks to economic growth coupled with more stubborn inflation.

What Goes Up (Probably) Sends Something Down

Typically, fixed-rate bond prices fall when market interest rates rise, in what’s called an inverse relationship. Moreover, when fixed-rate bond prices fall, bond yields rise (and vice versa in both cases).

That means that one possible sign of rising bond yields is the market pricing in the expectation of fewer rate cuts. Given new economic data, the uptick in the 10-Year note yield Tuesday — part of a trend that dates back to early December — is pretty much an indication of exactly that:

• Services sector activity accelerated in December, according to new data from the Institute for Supply Management released Tuesday. Its non-manufacturing purchasing managers index rose two points from November to 54.1. Anything above 50 suggests growth in the services sector — but a measure of the cost of service inputs also rose to 64.4, the highest since February 2023, from 58.2 in November, suggesting resilient inflation that could delay future rate cuts by the Federal Reserve.
• There’s also the matter of job openings, which Labor Department data released Tuesday showed rocketed to 8.1 million in November, well above the 7.7 million expected by economists. Actual hiring slowed to 5.3 million, down from 5.4 million in October — but the numbers generally align with the Fed’s hope of a so-called soft landing, where inflation and the labour market cool gradually and require less intervention over time.

GOP Elephant in the Room: Yields on the 10-year note have been rising since December as markets have bet that President-elect Donald Trump’s economic plans, like tariffs, and all-around animal spirits could push up inflation and the deficit, further reducing the probability of rate cuts. Then again, if anyone thinks they know what’s coming next, remember that old joke about the guy who walks into a bar and asks the bartender, “What if there were no US-Canadian border?” Never mind.