2-, 10-year Treasury yields end at one-week highs after August producer prices, retail sales data

What happened

• The yield on the 2-year Treasury
  BX:TMUBMUSD02Y
  rose 2.7 basis points to 5.011% from 4.984% on Wednesday. The 2-year yield is up seven of the past nine trading sessions.
• The yield on the 10-year Treasury
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  jumped 4.1 basis points to 4.289% from 4.248% Wednesday afternoon.
• Thursday’s levels are the highest for the 2- and 10-year yields since Sept. 6, based on 3 p.m. Eastern time figures from Dow Jones Market Data.
• The yield on the 30-year Treasury
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  rose 4.9 basis points to 4.384% after factoring in reopening levels. Thursday’s level is the highest since Aug. 22.

What drove markets

Data released on Thursday showed the August producer price index climbed a better-than-expected 0.7% last month. Separately, retail sales advanced 0.6% in August and beat the 0.1% forecast. Weekly initial jobless benefit claims rose by 3,000 to 220,000 in the week that ended Sept. 9.

As of late Thursday, traders priced in a 97% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% next Wednesday. Meanwhile, the chance of the central bank also standing pat at the subsequent meeting in November inched up to 63.6%, according to the CME FedWatch Tool.

In addition, traders boosted the likelihood of no action in December to 59.9% as they continued to absorb Wednesday’s mixed reading on the August consumer price index.

Meanwhile, the benchmark German 10-year bund yield
BX:TMBMKDE-10Y
was down 5.9 basis points at 2.596% after the European Central Bank lifted its interest rates by 25 basis points and signaled that may be the last hike.

What analysts are saying

Fed funds futures trading that implies no further action by the Fed in 2023 “is a little inconsistent with the short-term data we’ve seen,” said Gregory Faranello, head of U.S. rates for AmeriVet Securities in New York. “In the context of the data, PPI was hotter than expected, CPI was as expected with inflation still sticky, and initial jobless claims are pointing to a relatively decent labor market.”

Via phone, Faranello said he expects the Fed’s Summary of Economic Projections, released next Wednesday, to continue to reflect one more 25 basis point rate hike for this year.