Treasury yields declined across the board on Thursday, primarily in response to comments from Federal Reserve Governor Christopher Waller. He suggested a predisposition to keep interest rates unchanged at the upcoming central bank policy meeting in two weeks, citing encouraging signs of disinflation, despite inflation still being "meaningfully above" the Fed's 2% target. This sentiment provided a reprieve for the bond market, which had seen yields rise over the past month due to concerns about debt levels, inflation, and increasing global energy prices.
The benchmark 10-year Treasury note yield, which influences mortgages, auto loans, and credit card debt, dropped more than 5 basis points to 4.74%. The longer-dated 30-year Treasury yield, often more sensitive to geopolitical events, decreased by over 3 basis points to 5.231%. The shorter 2-year Treasury note yield, which closely mirrors the Federal Reserve's short-term rate decisions, fell by more than 7 basis points to 4.307%.
The decline in yields on Thursday contrasts with recent trends, where yields had touched multi-year highs. New York Fed President John Williams also expressed an "encouraging" view on recent data, noting that inflation is trending down and higher energy costs are not broadly affecting other services. He supported July's decision to hold rates steady and indicated a need to collect more data before reassessing policy. The next Fed meeting is scheduled for September 15-16.
The broader context reveals that rising global bond yields, including in Japan and Germany, have been driven by factors such as inflation fears, increased government debt, and higher energy prices linked to the Iran war. Some analysts, like Angelo Kourkafas of Edward Jones, point to uncertainty surrounding the Fed's policy path and increased bond issuance as contributors to yield pressure. Additionally, the financing of AI infrastructure by tech giants is reportedly increasing corporate debt issuance and pulling up yields more broadly.
