The 10-year US Treasury yield briefly reached 5% during intraday trading before closing at 4.98%, testing a key technical resistance level from autumn 2023. At the shorter end of the curve, the 2-year US Treasury yield rose 8 basis points to finish at 4.66%, driven by shifting interest rate expectations following August inflation figures and geopolitical supply shocks in the Middle East.
Inflation data lifts rate hike bets
US headline consumer price inflation registered at 3.4% for August, remaining above the 2% inflation target maintained by the Federal Reserve. Meanwhile, August core inflation arrived at 2.4%, marking its lowest level since March 2021.
Interest rate futures tracked by the FedWatch Tool indicated an 86.5% market-implied probability of a 25-basis-point rate hike at the upcoming Federal Open Market Committee meeting. Two-year yields priced in 100 basis points of rate increases beyond prevailing central bank levels. The Federal Reserve has not executed an interest rate decision contrary to market expectations since 2008.
Equities rebound alongside energy disruption
Equities advanced despite rising borrowing costs, as the S&P 500 gained 0.86% on Friday to end the week at 7,656.98. The advance snapped a sequence of five consecutive falling sessions for the benchmark index, while September 11 recorded an S&P 500 loss on only 4 occasions since 2001. The Nasdaq Composite rose 0.96% to finish at 26,333.04. The Dow Jones Industrial Average added 0.98% to close at 52,573.29.
Geopolitical tensions contributed to market volatility after Houthi forces reportedly seized the entire Red Sea coast of Yemen and attacked the Saudi East-West crude pipeline, forcing its closure. Brent crude oil traded at an intraday starting price of $110 per barrel before easing toward an intraday lower level of $105 per barrel.
Related: US 10-Year Treasury Yield Stands at 4.77%
Source: Federal Reserve | Data: FRED — St. Louis Fed · Deutsche Bundesbank
