Long-end U.S. Treasury yields: What’s going on?

Why are yields moving higher?

A move in Real Yields, Persistent inflation and the Fed’s Next Move

The move higher in 30-year nominal Treasury yields has been driven by increases in both real yields and inflation expectations. Rising real yields reflect a market reassessment of the long-term economic outlook, with investors pricing stronger growth, a potentially higher neutral interest rate, and a less accommodative path for future Fed policy. At the same time, with inflation remaining above the Federal Reserve's 2% target for five consecutive years, investors have become increasingly skeptical of the central bank's willingness to bring price pressures fully under control. Newly appointed Fed Chair Kevin Warsh initially helped ease concerns during his inaugural press conference in June, where Mr. Warsh emphasized that the Fed's commitment to restoring price stability was "strong, unanimous, and unambiguous." Markets interpreted these remarks as a signal that controlling inflation would remain the Fed's overriding priority. 

Confidence, however, faded quickly. At his second press conference in July, the market's focus shifted from what Chairman Warsh said, to what he left unsaid. While he reaffirmed the Fed's commitment to price stability, he stopped short of outlining the circumstances under which policymakers would further tighten policy. The lack of guidance came at a challenging time, with economic data generally surprising to the upside and inflation persist ing above target . Against a backdrop of political pressure for lower interest rates, investors have begun to question whether the Fed’s actions will ultimately match the Chairman’s rhetoric; this despite three regional presidents dissenting in favor of an immediate hike.