US Treasury bonds experienced a significant sell-off, driving the 30-year yield above 5 per cent for the first time since June. This surge was fuelled by concerns that potential tariff-driven inflation could delay anticipated interest rate cuts by the Federal Reserve. Bonds across all maturities declined, with short-dated securities, which are more sensitive to monetary policy changes, leading the downturn. Yields reached their highest levels in several weeks as a result of this widespread selling pressure.
The catalyst for the sell-off was the release of the latest consumer price index. While the data showed a smaller-than-estimated increase in prices excluding food and energy, certain elements suggested that the inflation gauge targeted by the Fed, due later this month, may increase more than economists had previously anticipated. This prospect led traders to reassess the likelihood of the Fed cutting rates more than once this year. The probability of a rate cut in September is now perceived as only slightly above 50 per cent.
Inflation data remains a crucial factor influencing bond-market sentiment, as Fed policymakers have indicated they are awaiting the full impact of the new US administration’s tariff policies before considering resuming interest-rate cuts. According to Gennadiy Goldberg, head of US interest-rate strategy at TD, there appears to be an inflation pass-through effect stemming from tariffs, which is expected to exert upward pressure on prices in the coming months.
The 30-year Treasury yield rose by approximately 4 basis points to 5.02 per cent. Earlier this year, it peaked at around 5.15 per cent after Moody’s Ratings downgraded the US’s credit score in May. Furthermore, Treasury options trading revealed a substantial wager, costing approximately $10 million, that the 30-year yield will rise to 5.3 per cent by August 22.
