A retreat in crude prices and dovish-leaning comments from New York Fed President John Williams pulled government bond yields off their recent peaks, though strategists warn the selloff that lifted them may not be finished.
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US 10-Year Yield Slips From 2023 Highs as Oil Retreats
US and European government bond yields eased from multiyear highs Thursday as falling oil prices and a New York Fed signal that rate increases aren't urgent relieved the pressure behind the selloff.
"There's no clear signs right now whether monetary policy currently is sufficient to make sure we bring inflation back to target in the next year or two, or whether we need to see further action to do that," John Williams, president of the Federal Reserve Bank of New York, told CNBC on Wednesday.
The US 10-year Treasury yield traded near 4.77 percent, retreating after touching its highest level since 2023, while Germany's 10-year bund yield slipped to about 3.36 percent and the UK's 10-year gilt eased to roughly 5.39 percent. Brent crude edged below $95 a barrel, easing the energy-driven inflation concern that had pushed yields to successive multiyear highs in recent sessions after the US and Iran exchanged strikes.
The retreat rippled across markets. European shares rose, US stock futures pointed higher, and the dollar weakened as lower oil prices and the softer Fed tone reduced the case for further tightening. Gold climbed more than 1 percent after US private payrolls data pointed to slower job growth in August, though Tickmill cautioned the metal could still decline given Fed Chair Warsh's recent hawkish remarks and oil-driven inflation worries. The yen strengthened to a one-month high against the dollar on chatter that Japanese authorities could again intervene in foreign-exchange markets.
The central question is whether this is a genuine pause or a brief breather before the selloff resumes. CIFC Asset Management said bond yields have more room to rise because of unresolved conflicts and the absence of a clear resolution timeline anywhere. Investors will watch the Institute for Supply Management's August report on services purchasing managers, due Thursday, for the next read on whether the Fed's policy stance is sufficient.
The last time the 10-year yield traded at these levels was in late 2023, when the Fed's higher-for-longer stance and heavy Treasury issuance drove a selloff that eventually reversed as inflation cooled. A repeat would depend on oil staying below $95 and the labor market continuing to soften, both of which would let the Fed hold policy without raising rates.
For now, the market is pricing a Fed on hold. Williams' comments suggest officials see no urgency to act, but they stop short of declaring victory over inflation. If the ISM services gauge surprises to the upside or oil climbs back above $95 on fresh Middle East escalation, yields could quickly retest their highs.
This article is for informational purposes only and does not constitute investment advice.
